Airline tickets: Airlines boost profits by selling fewer of them
Airline tickets aren't as plentiful as in 2008, allowing airlines to price them higher.
DALLAS — Airlines can't control the economy, but by limiting the number of seats for sale they are pushing up fares and earning their biggest profits in three years.
Delta, US Airways and the parent of American Airlines all posted higher-than-expected earnings for the peak summer travel season. They were helped by rapid growth in international traffic and a budding recovery in corporate travel. Delta and US Airways gave upbeat outlooks for the upcoming holidays.
Investors rewarded the companies by driving airline stocks sharply higher Wednesday.
Delta shares climbed nearly 11 percent to $12.97, American parent AMR Corp. soared more than 12 percent to $7.32, and US Airways Group Inc. rose nearly 9 percent to $10.97 in afternoon trading.
US Airways CEO Doug Parker said the airlines are reaping big profits despite a sluggish economy and relatively high fuel expenses. He said they've cut costs, raised money from fees, and grown smarter about pricing tickets.
"The airline industry is the industry recording record or near-record profits while the rest of U.S. industry is not," Parker told analysts and reporters. "That hasn't happened before."
Most of the other big U.S. airlines are scheduled to report results Thursday. Analysts expect the eight top carriers to post a combined adjusted profit of $2.4 billion, which would be their best performance since the third quarter of 2007.
When fuel prices soared and then the global economy slowed, airlines grounded planes and cut flights. They've restored some of those cuts this year, but not all of them, leaving fewer available seats than existed in 2008.
That's helped the airlines boost fares. American said passenger yield, or the average fare per mile, rose nearly 11 percent compared with last summer.
The biggest airlines — the ones that fly all over the world — are also benefiting now that international travel is growing much more rapidly than traffic within the U.S.
Delta Air Lines Inc. increased its presence in Asia when it bought Northwest Airlines, and it has added a dozen new nonstop trans-Pacific routes since 2008. Those moves paid huge dividends this summer.
American and United hope to cash in too, as both have recently announced plans to fly between Los Angeles and Shanghai, China. They would take on China Eastern Airlines, which already flies the route.
"It's a very important business route, and it's a big market for some of our corporate accounts in Southern California," said Virasb Vahidi, American's chief commercial officer.
The increase in international traffic and higher fares helped Delta raise passenger revenue 19 percent over last summer.
Delta said Wednesday it earned $363 million, or 43 cents per share, in the third quarter. Not counting one-time costs, many tied to debt reduction, it would have earned $1.10 per share, well above the 94 cents per share that analysts had forecast.
The Atlanta-based airline said it expects solid revenue gains during the holiday travel season. "We expect those revenue gains to help produce our first profitable December quarter in a decade," Delta Chief Financial Officer Hank Halter said in a memo to employees.
US Airways President Scott Kirby said that the airline thinks about the holidays in terms of peak days and off-peak days. Bookings on peak days are about the same as last year, while off-peak days are up 3 percent. "Yields are good," he added. "So we feel good about demand for the two holidays."
American parent AMR, based in Dallas, said it earned $143 million, or 39 cents per share, topping analysts' predictions of 32 cents per share.
AMR hadn't reported a profit since the third quarter of 2008, when it sold an investment business. It hadn't made money from its flying since 2007.
US Airways reported net income of $240 million, or $1.22 per share, beating the $1.17-per-share forecast from analysts surveyed by Thomson Reuters.
US Airways, based in Tempe, Ariz., said it will recall all of its furloughed pilots and flight attendants by the end of this year to supplement its international service and expects to hire additional flight attendants early next year.