"U.S. airlines fly into more profit"

Wednesday, October 18, 2006

American to get airline-profit party started 
By Dan Reed
USA TODAY


FORT WORTH - The USA's airlines are about to do something they haven't done
in six years: report profits for a second-consecutive quarter.

Fort Worth-based American Airlines (AMR) on Wednesday will kick off the
parade of profit reports for the July-September quarter. If Wall Street has
it pegged, airlines are likely to report a collective profit of more than $1
billion for the quarter.

American is expected to report a profit despite costs associated with the
Aug. 11 bomb-plot scare in London. The largest U.S. carrier in the U.S.-U.K.
market, American said last month that the terrorist scare and its aftermath
cost about $50 million in lost revenue. 

Two other big, Texas-based carriers, Continental (CAL) in Houston and
Southwest (LUV) in Dallas, are expected to report quarterly profits on
Thursday. 

The rest of the USA's big airlines are expected to report profits over the
next few weeks. The only exceptions will be Delta and Northwest, both of
which have been operating in Chapter 11 bankruptcy since September 2005. And
even they are expected to report third-quarter operating profits excluding
bankruptcy-related costs.

Ray Neidl, airline analyst at Calyon Securities, says he expects the
industry's third-quarter profits to total about $1.3 billion, excluding
one-time accounting items. For all of 2006, he expects the industry to earn
about $1.1 billion, which would be the first industry profit since 2000.

Neidl expects the airlines to report record profits in 2007 of $6.1 billion.
His projection assumes continuing economic stability and oil prices at about
$60 a barrel.

Last achieved in the second and third quarters of 2000, the latest run of
profitability for the industry is driven by general economic strength, high
travel demand and higher fares. Third-quarter revenue is expected to be up
about 10% from the quarter last year.

Airlines' restraint in adding flying capacity and moderating oil prices also
are factors. However, the full impact of a 20% decline in oil prices since
midsummer won't be evident until results of the fourth quarter are announced
early next year.

Still, analysts who cover the airlines continue to express concerns about
the industry, which has lost more than $40 billion over the last five years.

Matthew Jacob at Majestic Research says he's concerned about recent guidance
from most big carriers suggesting slower growth in the average revenue
generated from flying one airplane seat one mile.

"We're still talking about pretty solid growth," he says. "Most will be in
the mid- to high-single digits." That's down from the double-digit growth
that many carriers were reporting earlier this year.

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