Third Quarter Results Make Airlines Look Smart

Third-quarter results showed the benefits of more than a year of reducing capacity, and of adding incremental fees that provided each of the three largest carriers with at least $1 billion annually in new revenue. Airlines, it seemed, were one of the few industries that actually prepared for the recent recession.


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Among the nine largest carriers, seven beat third-quarter estimates and, excluding items, six reported profits. That’s not bad for consumer-sensitive companies attempting to fly through an economic slowdown.

“All of us have done what was needed to do to get through this very difficult time,” said US Airways CEO Doug Parker, speaking at the conclusion of the industry’s final earnings conference call on Thursday. “You’re not going to see any additional casualties. Those of us that are around have made it through a difficult time.

“But it’s not over,” Parker continued. “We’ve got to get this industry back to profitability. The standard can’t just be survival. We passed that standard, but there’s a higher standard: getting investors a return for their investment.

On the American Airlines conference call, CEO Gerard Arpey noted that the carrier has arranged about $5 billion of new financing in recent weeks. “These are good developments to protect all of our stakeholders, but we are under no illusions that this represents a long term solution for our business,” Arpey said. “Ultimately success will be measured by our ability to drive profits.”

Like American, most carriers raised capital during the quarter, another positive sign showing an industry that, having learned the harsh lessons of the past decade, is now conditioned to prepare in advance for whatever crisis may occur.

In the years following the Sept. 11 terrorist attacks, which contributed to a falloff in traffic that began early in 2001, airlines addressed their high costs through a series of bankruptcies, cutting both capacity and costs.

Following the bankruptcies, airlines reported two consecutive years of profits, earning about $8.6 billion in 2006 and 2007. This was an immensely positive achievement only by the standards of an industry that preceded it with losses of $36 billion over five years, according to Air Transport Association figures.

The profits might have continued for a third year, were it not for an extraordinary run-up in fuel prices. The resulting losses totaled $9.5 billion in 2008, leading to the capacity cuts and new fees. And today, the industry seems prepared for the next crisis, which could well be a return of high fuel prices.