Fuel costs hit airlines' 4Q
Delta and Continental fly over estimates, but fuel costs bite profits
NEW YORK (CNNfn) - Higher fuel costs hit airline earnings hard, although Delta Air Lines and Continental Airlines were both able Tuesday to fly high over analyst earnings for the fourth quarter.|
Fuel costs increased between 9 and 71 percent in the quarter for the three carriers reporting -- Delta, Continental and Southwest Airlines. The three carriers all had strong revenue growth, though, giving analysts the hope that the U.S. industry can continue to post strong profits into 2000 even with higher fuel costs.
"The fuel was a little higher than expected, but the revenue was a little higher as well," said Ray Neidl, airline analyst with ING Barings. "It still looks like the revenue environment is very strong.
"Looking ahead, the revenue side is going to be decent. The cost side should be OK," said Neidl. "The big question mark is fuel. It has to start coming down if we're going to have a strong 2000."
Delta protected from fuel hikes
Atlanta-based Delta (DAL), the third-largest carrier in the United States behind United Airlines and American Airlines, posted earnings from operations for the quarter of $175 million, or $1.24 a diluted share, which excludes a $649 million gain from the sale of investments in the quarter. That's down from net income of $194 million, or $1.29 a share, a year earlier.
Analysts surveyed by earnings tracker First Call Corp. expected the company to earn $1.12 for the period.
Including the investment gain, consisting mainly of the proceeds from the sale of shares of priceline.com (PCLN), Delta's net income for the latest quarter was $352 million, or $2.50 a diluted share.
Revenue for the quarter rose 8 percent to $3.7 billion.
Although the airline has more protection, or hedges, in place against fuel cost increases than many of its competitors, the company's fuel costs rose 9 percent to $384 million in the quarter.
For 1999, the company's net income, including special items, was $1.29 billion, or $8.68 a diluted share, compared with $1.08 billion, or $6.87 a diluted share, in 1998. Annual revenue rose to $13.7 billion from $13.2 billion.
The company said its expected fuel needs are 75 percent hedged for the 2000 year.
Delta is not pulling out of its investment in e-commerce operator priceline.com (PCLN). Instead it restructured its investment, obtaining the right to exchanging 6 million shares of common stock for preferred stock and getting warrants for 5.5 million additional common shares for 56-5/8.
Continental tops estimates
For the quarter, Continental (CAL), the fifth-largest U.S. carrier, posted income from operations of $33 million, or 47 cents a diluted share.
But, the Houston-based company's earnings in the quarter dropped 50 percent from its year-earlier net figures of $66 million, or 91 cents a share, as a 50 percent hike in fuel costs hit the carrier in the quarter.
First Call put analyst estimates at 39 cents a share in the quarter.
Including special items, Continental's net income was $167 million, or $2.42 a diluted share, in the latest quarter.
Revenue was up 11.3 percent to $2.2 billion in the period.
For the year, Continental's net income climbed to $455 million, or $6.20 a diluted share, from $383 million, or $5.02 a share. The company's revenue for the year rose to $8.6 billion from $7.9 billion, and its fuel costs for the year rose 6.1 percent to $771 million.
Southwest sees fuel costs soar
Southwest (LUV), the fast-growing discount carrier, had fourth-quarter net income of $93.8 million, or 18 cents a diluted share, which met First Call estimates. That marks a 6.6 percent decline from the $100.4 million, or 19 cents a share, it earned a year earlier.
The Dallas-based company's fuel costs leapt 71 percent in the quarter to $161.1 million, overwhelming a 15 percent gain in revenue in the quarter to $1.2 billion.
For the year, Southwest had record net income of $474.4 million, or 89 cents a diluted share, up from the $433.4 million, or 82 cents a share, for 1998. Revenue for the year was up 13.7 percent to $4.7 billion.
The reports come the day before the two largest carriers, UAL Corp., (UAL) owner of United Airlines, and AMR Corp., (AMR) owner of American Airlines, are set to report results. Analysts surveyed by First Call are looking for a 15 percent increase in earnings per share to $1.75 a share at UAL, but a nearly 40 percent drop in earnings per share at AMR to 61 cents a share.
In afternoon trading Tuesday, Delta's stock was up 1-1/16, or 2.1 percent, to 51-1/16. Continental's stock was off 7/8, or 2.1 percent, to 40-1/4. Southwest was also off 3/8, or 2.3 percent, to 13-13/16.