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U.S. airlines on Cloud 9
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January 21, 1998: 3:36 p.m. ET
Despite Asian crimps, American carriers log stellar quarterly earnings
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NEW YORK (CNNfn) - Ignoring higher airfares and encouraged by a buoyant economy, Americans took to the skies in droves during 1997 and propelled airline earnings.
The greater number of travelers, coupled with lower fuel prices and a 5 percent across-the-board fare increase in early December, added up to a banner year for America's carriers, industry observers say.
"The fundamentals fell into place," said Julius Maldutis, an airlines analyst with Salomon Smith Barney.
Altogether, Maldutis said, total industry net income reached $5.2 billion in 1997, a nearly 25 percent rise from $4.1 billion in 1996. Meanwhile, fourth-quarter earnings shot up about 70 percent over the year-again period, to $900 million.
Among major carriers, Northwest Airlines Corp. (NWAC), the nation's fourth-largest, saw its net income quadruple in the fourth quarter ended Dec. 31, to $105.4 million, or 97 cents per diluted share, from $26 million, or 19 cents a share, in the comparable period a year ago.
Strength despite Asian erosion
Doug Killion, Northwest's director of international communications, said his airline had carried a record 54 million passengers in 1997. Killion said that domestic routes accounted for 60 percent of Northwest's $10.2 billion in revenues in 1997 with another 30 percent generated by the airline's 150 weekly roundtrips between the U.S. and Asia.
While the Asian market turmoil had eroded Northwest's Pacific Rim earnings, Killion said the airline still managed to post a $65 million profit in the region in 1997, helped in part by a 13.3 percent fourth-quarter decrease in fuel prices. Overall, fuel costs for Northwest were down 0.2 percent in 1997.
"On the leisure side, people are not afraid to plan and take vacations," he noted. "And on the corporate side, though there is some concern about prices for business tickets, companies have been willing to pay those prices for their business travelers."
Good news from Continental, Delta
Continental Airlines' (CAIB) net income in the same quarter increased 55 percent, to $73 million, or 97 cents per diluted share. That handily beat the Wall Street consensus estimate of 89 cents a share.
Continental Airlines reported increased capacity of 10 percent - or 2.9 million more passengers - in 1997. "The company has made a tremendous turnaround," said Continental spokeswoman Sarah Anthony. "The momentum continues."
Delta (DAL), the nation's leading domestic carrier, said Wednesday it had earned net income of $190 million, or $2.40 per diluted share, in its December quarter, well above the Wall Street estimates of $1.88 a share.
Kimberly King, Delta's manager of national communications, said the airline logged record passenger traffic in 1997, at 103 million travelers, up from 97 million in 1996. Fuel prices in the fourth quarter decreased 12 percent, to $409 million, allowing the airline to trim operating costs for its 621 daily departures.
King attributed the sharp gains to "our efforts to relocate assets and build on the strengths of our network. … There's a strong environment for flying," she added.
America West Airlines (AWA), based in Phoenix, earned $20.1 million in the fourth quarter, or 43 cents a share, a 66 percent jump.
US Air Group (U) also posted banner fourth-quarter earnings of $42.9 million on revenues of $2.08 billion, up from $20.7 million on revenues of $2.05 billion in 1996. The earnings excluded a one-time expense of $115 million for an early retirement program for pilots and a $10 million write-off relating to facilities leases.
More savvy about yields
Analysts said the generally rosy reports also reflected the airlines' growing management savvy.
"The airlines are getting better at improving their yield management systems," said Raymond Neidl of Furman Selz ING. "Load factors are about the highest that they can be, on average Yields are holding up very well. Costs are behaving themselves."
The better performance stretches right up to the check-in counter, Neidl added.
"They're getting a lot more bang for their buck, because they're able to keep enough seats at the last minute for the high-paying business traveler, yet they keep their load factor up very high for the leisure traveler."
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