NEW YORK (MarketWatch) -- The airline industry kicked off its six-year turnaround Wednesday as its low-cost carrier, Southwest Airlines Co., and its largest carrier, American Airlines' AMR, both turned in profitable quarters and year-end results.
Slowing revenue growth, winter storms and historically high jet fuel prices in the last three months of 2006 led many Wall Street observers to forecast a loss for American Airlines (AMR) , the No. 1 carrier by market share in the U.S., as well as United Airlines' UAL Corp. (UAUA) and Continental Airlines Inc. (CAL)
But AMR's December revenue was "stronger than we anticipated in the last 10 to 15 days of the month," Gerard Arpey, the company's chief executive said in a conference call.
Better fuel management took center stage, as Southwest was forced to shave a few pennies from its earnings while American spent less on jet fuel than it forecast just three weeks ago.
The lower fuel costs boosted AMR's earnings by 11 cents a share, according to J.P. Morgan analyst Jamie Baker. AMR posted net income of $17 million, or 17 cents a share; analysts polled by Thomson First Call forecast a loss of 13 cents a share.
Many analysts modeled fuel costs of $1.91 a gallon but that figure came in at $1.87 to $1.88. AMR said it saves $30 million a year for every penny decrease in the per-gallon price of jet fuel.
AMR's yield, or the average fare it was able to charge, also grew, as did the percentage of full flights it was able to operate.
For the year, AMR posted net income of $231 million in profit, or $1.22 a share in earnings, its first profit since 2000.
Southwest, posting its 34th year of consecutive profits, said it made $587 million in 2006, excluding special items.
While Southwest's (LUV) quarterly results were in line with analysts' overall earnings and revenue estimates, Merrill Lynch analyst Michael Linenberg said the carrier saw its passenger unit revenue growth trail off near the end of 2006, a victim of the lingering security procedures put in place after the August 2006 terrorist threats in London.
Airlines as a group will report a 2006 combined profit of $2 billion to $3 billion, according to an Air Transport Association estimate. In 2000, U.S. passenger and cargo airlines recorded a $2.5 billion net profit but the economic slowdown and the terrorist attacks of Sept. 11, 2001 led to a downturn in travel and a string of annual losses totaling $35 billion.
Crude-oil futures ended 2006 near $61 a barrel, high by historical standards for air carriers, but recently traded near $52 a barrel.
That precipitous drop, headlines about mergers and years of cost cutting all but ensure a profit in 2007, analysts and industry groups said.
Continental, the fifth-biggest U.S. carrier by market share, including Southwest, reports results Thursday before the bell.
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Some analysts believe 2005 could be the year when more long-suffering carriers finally descend into bankruptcy.
The U.S. airline industry is coming off an up-and-down year that saw two major carriers file for bankruptcy but others begin to pull out of a nosedive that began in 2001.