Airlines trim flights, make other tweaks to offset fuel
DALLAS – Airlines are bowing to the staying power of higher fuel prices by culling unprofitable flights while trying to boost revenue by being nicer to customers.
American Airlines, for example, will soon make its cheapest “basic economy” tickets less unforgiving by letting buyers stow a rolling bag in the overhead bin like all other passengers, but restrictions like boarding the plane last and not being able to pick seats until 48 hours before the flight will remain in place. American also will grow more slowly than it planned later this year, a move that seemed to cheer investors – airline stocks rose.
Even with those moves, American again cut its forecast of full-year profit.
Earlier this month Delta Air Lines and United Airlines both said they expect to pay about $2 billion more for fuel this year than last year, although United said it was covering about 75 percent of that cost in higher prices.
A fresh round of financial reports on Thursday underscored how fuel is cutting into airline profits.
– American Airlines Group Inc.
The Fort Worth, Texas-based airline said second-quarter profit plunged 34.5 percent to $566 million as it spent $729 million more on fuel than a year ago when including spending by its regional subsidiaries. Revenue rose 3.7 percent to $11.64 billion.
Excluding what American considered non-repeating costs, earnings were $1.63 per share. That was 4 cents higher than the average forecast of 16 analysts surveyed by FactSet.
For the second time this year, American cut its forecast of full-year earnings. The new forecast – between $4.50 and $5 per share – is $1 lower than the original. Some analysts had predicted the lower forecast.
American trimmed planned growth in passenger-carrying capacity in the third and fourth quarters and said it will delay delivery of some new planes starting next year to conserve cash from 2019 through 2021.
On the passenger side, American announced that starting Sept. 5, buyers of so-called basic economy tickets will be able to bring a carry-on bag in addition to one “personal item” like a backpack or messenger bag that fits under the seat. Executives hinted that American is losing price-conscious customers to Delta Air Lines, which already lets basic economy customers have a carry-on bag.
Don Casey, the airline’s senior vice president of revenue management, said the change in basic economy would bring in more than $100 million a year.
– Southwest Airlines Co.
Southwest’s second-quarter profit slipped by $10 million, to $733 million, while revenue was about flat at $5.74 billion.
The Dallas-based airline spent 40 percent more on fuel, but losses last year and gains this year on hedging – it’s like buying insurance against price spikes – made the fuel impact look much smaller at Southwest.
In April, a woman died on a Southwest flight when an engine tore apart and a piece struck her window, breaking it – the airline’s first passenger fatality from an accident. Southwest stopped advertising for a time, and the airline said Thursday that led to a $100 million loss of revenue.
Southwest might also have been forced to discount prices to keep planes full. The average second-quarter fare was 4 percent lower than a year ago, down to $151.94.
CEO Gary Kelly said travel demand has been strong and the impact of the accident on sales should subside in the third quarter for the nation’s fourth-biggest carrier.
Stripping out certain items, Southwest’s adjusted profit was $1.26 per share, 3 cents better than the forecast of analysts surveyed by FactSet.
– Alaska Air Group Inc.
Seattle-based Alaska, the nation’s fifth-biggest airline, saw net income fall 34 percent to $193 million on a 38 percent jump in fuel spending. A closely watched figure, revenue per seat per mile, fell 4 percent, and Alaska predicted it would be flat to down 3 percent in the third quarter.
In late-morning trading, shares of American rose $1.92, or 5 percent, to $40.11; Southwest climbed $3.43, or 6.6 percent, to $55.72; and Alaska gained $2.96, or 5 percent, to $62.07.