Kevin O'Toole/LONDON

Apart from fears over the threatened fuel tax, US airlines had little to complain about from their financial performance in the second quarter, turning in a clutch of record profits.

The major carriers ended the quarter showing a combined net profit of more than $800 million and with no red ink in sight. The turnaround comes through steady traffic growth, combined with the good housekeeping, which has seen the industry attack costs and over-capacity.

The settling down of low-cost competition, together with capacity restraint, allowed passenger yields to rise by nearly 3%, while overall seat costs edged down by a percentage point.

Delta Airlines led the profit renaissance with a $250 million net result. President Ron Allen points out that this was the same amount that the group managed to shave off expenses in the quarter in pursuit of its goal of reaching seat kilometre costs of ¢4.7. Delta's transatlantic operations are also said to be showing their first profit for four years.

Allen says that the major challenge now facing the airline is to complete a new contract with pilots. "Our pilot cockpit costs are simply not competitive," he warns.

Continental Airlines, now rid of its low-cost Lite operation, was among those producing record profits for the quarter with yields leaping nearly 9%.

The end of Continental Lite also helped ease pressure on USAir, also showing profits at an historic high. Chairman Seth Schofield says that the group is on course to achieve $400 million in savings this year and pass the targeted $500 million mark in 1996.

Perhaps the most unexpected good news came from Southwest Airlines, which confounded Wall Street pessimism by showing its first profit improvement for a year and beating the record 1993 result. Yields also showed welcome signs of stabilising after the tumble at the turn of the year. Reversing earlier gloom, Southwest has been moved to predict continued improvement over the second half of the year.

The results were only marred by continued concerns about the ¢4.3/gal tax on commercial jet fuel, due to start in October. Paul Karos, airline analyst at CS First Boston warns that the tax could cost $530 million per year and effectively wipe out some of the good work on cost reduction. He warns politicians "...not to be fooled that one or two years of profitability will ever return this industry to a solid footing".

Source: Flight International