US airlines look at positive second quarter
Published: June 20, 2012
Hopes are high that the hard-won improved financial performance of US carriers will be sustained this year, amid encouraging signs of a solid second quarter.
Following tight capacity discipline and strong performance so far, IATA has raised its 2012 forecast for North American carriers profits by $ 500 million. It now expects North American carriers to make a collective net profit of $ 1.4 billion this year, outperforming its profitable 2011.
The signs are positive for the second quarter. Fuel prices are down, while major carriers continue to maintain their capacity controls and report passenger revenue per available seat mile (PRASM) gains.
The five-day moving average price of jet fuel dropped to less than $ 115 per barrel during the week ending 8 June, from more than $ 135 per barrel at the end of March, according to Airlines for America (A4A) calculations. This negatively impacts airlines with hedges – Delta reported an average adjusted fuel price of $ 3.37 per gallon in May compared with $ 3.11 during the first quarter – but the overall trend is positive.
Analysts are mixed on the impact of falling fuel prices. Many cite an initial boost to airline revenues if they stay low; however, as Deutsche Bank’s Michael Linenberg warns the decline could herald a slump in travel demand.
Airlines addressed capacity in two ways during April and May. The US majors maintained capacity controls and shrank available seat miles by 1%, while revenue passenger miles were roughly flat. Smaller carriers, including Alaska, Allegiant, Frontier, Hawaiian, JetBlue and Spirit, lifted capacity by 8.3%, while traffic grew by 9.5%.
The strategy appears to be paying off. PRASM was up at the majors, except United and JetBlue, by 3-8% in May compared with a year earlier. While lower than April, this shows airlines are still improving yields, albeit at a slower pace. “As meagre as airline profitability goes, it stands to be a fairly good quarter,” says A4A chief economist John Heimlich.