U.S. Airlines Expected to Show Profit for First Time in Years

For the first time in years, U.S. airlines as a group should show a profit, not a loss, when they report quarterly earnings in coming days.

A combination of higher fares and fuller airplanes is benefiting airlines, which haven't reported a profitable quarter as an industry since 2000.

"June quarter results for the U.S. airline industry are expected to be strong," Merrill Lynch analyst Michael Linenberg said in a report Friday, "and we think September's results could be even better."

Southwest Airlines Co. and AMR Corp., parent of American Airlines Inc., both are expected to report higher profits Wednesday when they kick off the earnings season for airlines.

Dallas-based Southwest is expected to report net income of 26 cents per share, or about $209 million, according to a consensus of industry analysts surveyed by Thomson Financial. In second quarter 2005, Southwest earned 18 cents per share, or $144 million.

AMR is projected to post a profit of $1.14 per share, or about $215 million. The Fort Worth-based carrier earned 30 cents, or $58 million, in the 2005 quarter, only the third time since the start of 2001 that the company had reported a quarterly profit.

On Thursday, Continental Airlines Inc. is expected to report net income of $1.90 a share, or about $167 million. A year earlier, it earned $1.26 a share, or $100 million. Excluding a special one-time item a year ago, Continental earned 69 cents a share or $53 million.

Airlines have been able to raise airfares this year, and JP Morgan analyst Jamie Baker estimated that average fares per seat per mile will go up 11 percent in 2006. In addition, the carriers are reporting jam-packed airplanes, with average loads exceeding 80 percent.

Linenberg estimated that the U.S. airline industry will report a net profit of $1.2 billion collectively for the second quarter, double his previous estimates for the airline group.

"In fact, notwithstanding record high fuel prices, industry fundamentals have not been this good in years. ... As a result, we think the current up-cycle could be extended at least another year as long as the industry continues to demonstrate restraint when it comes to adding capacity, particularly in domestic markets," he said in his report.

For most of the nation's largest carriers, profits have been scarce for the past five years, and the reporting of any black ink will be a welcome event.

One can look to UAL Corp., parent of United Airlines Inc., as an example of the improved fortunes for major airlines. UAL is expected to post a profit of about 46 cents a share, or about $45 million.

That's not much for what is traditionally one of the best, busiest quarters of the year. But it's a significant improvement for the nation's second-largest carrier, which lost more than $3 billion in the second quarters from 2001 to 2005, an average of over $600 million per period.

In fact, it will mark UAL's first real profit in any quarter since second quarter 2000, if one excludes first quarter 2006 when a write-off of nearly $23 billion in liabilities was booked as income as UAL emerged from bankruptcy.

The star of this round of earnings may be US Airways Group Inc., which combined last year with America West Holdings Corp. Analysts expect the carrier to report earnings of $3.31 a share, or about $285 million.

Two major carriers operating in bankruptcy, Delta Air Lines Inc. and Northwest Airlines Corp., are expected to continue to lose money.

In reports filed with a bankruptcy court, Delta said it had a net loss of $43 million in April and May, compared to a net loss of $2.07 billion in first three months of 2006 and $382 million in second quarter 2005.

Northwest reported April-May losses of $383 million. That compares to a net loss of $1.75 billion in first quarter 2006 and $225 million in second quarter 2005.

Notwithstanding the anticipated profits for the industry, airline stocks have fallen in recent days as the price of oil started climbing again.

"It's going to be a good quarter," said Ray Neidl, airline analyst at Calyon Securities Inc. "But the market has already stacked that in. The market is very worried."

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