US carriers continue to lead industry profits after a strong 2014 and bright prognosis from lower fuel costs, even if the fourth quarter performance took a hit from Delta Air Lines' settling of its hedging positions.

North American carriers posted a collective operating profit of $1.85 billion in the last quarter of 2014. This was down slightly on the $2 billion operating profit enjoyed in the fourth quarter of 2013.

US Q4 2014 results

That drop was driven by Delta posting an $828 million operating loss after special items during the fourth quarter, compared with a profit of $701 million at the same stage in 2013. That loss was based on negative mark-to-market adjustments to future fuel hedge settlements. Without special items, the SkyTeam carrier’s pre-tax operating profit was about $1 billion in the final quarter of 2014.

With the exception of the relatively small deterioration at Allegiant and Skywest, all other US carriers posted an improvement in operating profits for the period.

While United enjoyed a strong fourth quarter, it too recorded $225 million in losses on settled hedges for the period.

Collective US carrier net profits in the fourth quarter were even more heavily distorted by Delta's performance. The airline's fourth quarter net loss of $712 million compared with nearly $8.5 billion in the same period in 2013 - reflecting one-off tax gains.

The strong financial performance of US carriers in 2014 was evident in full-year operating profits reached $13.3 billion. This marked an improvement of nearly $3 billion on 2013. All carriers, except Delta and SkyWest, posted full-year operating profits. Despite the heavy one-off costs, Delta still posted a full-year operating profit of $2.2 billion for 2014.

US full year results 2014

While Delta took a financial hit in the fourth quarter from settling hedging positions, it anticipates a net $2 billion upside from low oil prices in 2015. "There's a tremendous opportunity in front of us from lower fuel prices, we will drive these savings to the bottom line with strong revenue growth and yield preservation,” says Delta chief executive Richard Anderson. “At current fuel prices we expect to capture over $2 billion in fuel savings benefit in 2015 net of our hedges.”

The story is repeated across the US airline sector as carriers stand to gain billions of dollars this year if oil prices stay low, cash that they say will largely be put towards further deleveraging of their balance sheets and increased shareholder returns.

American Airlines anticipates an about $5 billion upside from lower oil prices in 2015 and Southwest an about $1.7 billion upside. United Airlines has not provided a specific financial benefit for the year but a back of the notebook analysis by Flightglobal shows as much as $4.1 billion in savings based on its fuel price and hedge loss guidance.

American, Delta and United all plan to use the benefit of low fuel to continue paying down debt and returning cash to shareholders, with little or no change to their existing strategies.

Source: Cirium Dashboard