Fourth Quarter Earnings Recap (Part 1)

The first batch of earning reports are in for some of the world’s largest airlines and while the numbers haven’t been extraordinary so far, there was some positive news in the results as demand for air travel continued to increase.  In no particular order, the following companies presented earnings this last week:

Delta Air Lines: The world’s largest airline reported profit of $19 million for the fourth quarter. Delta also reported that its traffic had increased by 3.7% in December 2010 over the same month last year. Despite the rise in passenger traffic and a rise in profit, Delta’s shares were down as investors seemed disappointed by the lower-than-expected earnings as the stock fell over 8% after earnings were reported.

Southwest Airlines: Southwest continued to prove that an airline can run, and run very profitably, without those annoying baggage fees that the rest of the industry relies on. The Dallas-based airline reported a profit of $131 million for the fourth quarter after strong demand from both casual travelers and business travelers alike.

With a proven business model that is the envy of the airline industry, Southwest’s profits didn’t raise eyebrows as much as CEO Gary Kelly’s suggestion that the airline might look at purchasing non-Boeing aircraft in the future despite currently flying only Boeing 737s (nearly 550 of them). As the airline looks to expand by adding more aircraft to its fleet it has added its name to the growing list of companies frustrated by Boeing’s indecision on the future of the 737 which Boeing has yet to fully address (although an announcement is expected sometime this year).

American Airlines: American was the only major airline this week to post a loss in the fourth quarter but investors, at least initially, welcomed the news that the company’s losses were less than expected. According to Reuters AMR Corp., parent company of American, reported a loss of $97 million on the fourth quarter which was a large improvement over its loss of $344 million in the same quarter the year before. The stock was up %2.5 percent after the news but ended down sharply after investors began to mull whether the company is well-positioned for the upcoming year and the uncertainties regarding oil prices hanging over the industry as a whole.

With its extreme volatility, oil remains the biggest concern for an industry still recovering from the economic crisis of the last two years. According to Beacon Equity Research, fuel accounts for nearly a third of an average airline’s total cost, leaving them vulnerable to the ups and downs of oil prices. The summer months will be critical for the airlines as that is the time of year that oil prices typically increase the most. With a recovering economy, experts are expecting oil to increase in price as worldwide demand increases. Should that price go above what airlines are banking on when establishing ticket prices for the summer, it could be bad news for an already fragile industry.

Next week will bring another round of earnings as United Airlines, US Airways, and Boeing all release their fourth quarter earnings.

 

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One Response to Fourth Quarter Earnings Recap (Part 1)

  1. Pingback: Earnings Recap: Part 2 | Airports and Airplanes

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