http://www.usatoday.com/travel/flights/200...cted-good_x.htm
Exceptional year' predicted for airlines
Posted 1/15/2007 9:54 AM ET
Dawn Gilbertson, The Arizona Republic
Airlines will look back on a solid 2006 as they start reporting year-end financial results this week, but investor attention will be riveted on their outlooks for 2007.
By all accounts, this year should be even better, with industry profits the highest since 2000 because of continued strong travel demand, fewer flights and lower oil prices. And none of the forecasts includes any merger benefits should the US Airways-Delta deal or other talked-about pairings get off the ground.
"I would expect it to be a very good year, and if oil prices stay where they are . . . an exceptional year," said Jim Corridore, airline equity analyst with Standard & Poor's.
Of course, a very good year in the perpetually challenged airline industry would be a mediocre year in many businesses. But few in the industry are complaining, given the four-year bruising the industry endured after Sept. 11.
The industry lost $35 billion in that period, according to the Air Transport Association.
The trade group's earnings forecast for 2007, which includes U.S. passenger and cargo airlines, is for a profit of $4 billion to $6 billion.
That's double the expected tally for 2006. Airline analyst Roger King says the key to the strength of the recovery is the ability of airlines to continually raise fares.
Buoyed by flight cutbacks, airlines raised fares several times last year without scaring away passengers.
"So far, the consumer's not revolting," said King, of bond-research firm CreditSights.
Southwest has repeatedly raised its fares, albeit in small increments. CEO Gary Kelly said the airline was seeing some pockets of resistance to higher fares in the second half of 2006.
It raised fares during the holidays, so analysts will be looking for further insights from Kelly when the airline kicks off earnings season Wednesday with its fourth-quarter results and conference call.
Southwest, the industry leader in profits, is expected to report a fourth-quarter profit of 13 cents per share.
US Airways is also expected to be profitable, with per-share earnings of 80 cents per share, as it has led the industry in revenue gains thanks to higher fares. The airline cut flights as part of the America West-US Airways merger.
JP Morgan analyst Jamie Baker called the airline's profits robust, even after the company tweaked its projections slightly downward last month. He said the airline's profitability "stands in sharp contrast" to projected losses at American, Continental and United.
Analysts are forecasting a loss for many airlines for the quarter, a reversal from forecasts of almost across-the-board profits even though the fourth quarter is airlines' weakest.
Bookings, which were on a tear for most of the year, didn't turn out as strong as expected and, in some cases, holiday storms hurt business.
Frontier Airlines said December blizzards in Denver cost it about $12 million. But that's in the past. The focus is now on 2007.
In addition to the industry's improving foundation and a sharp drop in oil prices this year, the prospect of mergers has industry watchers frothing. Airline stocks are up sharply in anticipation of deals.
Bear Stearns analyst David Strine calls all the merger talk, started by US Airways' bid last fall for Delta, the "game changer" this year. If US Airways and Delta combined, he said, the industry's already-modest growth plans of about 3 percent would fall to 1 percent because US Airways has said it would shrink the combined airline's fleet.
Fewer added seats mean more chances to raise fares.
"Mergers and acquisitions could turn what we believe is a reasonably sturdy recovery cycle into a super cycle," Strine said in a report last week.
Posted 1/15/2007 9:54 AM ET
Exceptional year' predicted for airlines
Posted 1/15/2007 9:54 AM ET
Dawn Gilbertson, The Arizona Republic
Airlines will look back on a solid 2006 as they start reporting year-end financial results this week, but investor attention will be riveted on their outlooks for 2007.
By all accounts, this year should be even better, with industry profits the highest since 2000 because of continued strong travel demand, fewer flights and lower oil prices. And none of the forecasts includes any merger benefits should the US Airways-Delta deal or other talked-about pairings get off the ground.
"I would expect it to be a very good year, and if oil prices stay where they are . . . an exceptional year," said Jim Corridore, airline equity analyst with Standard & Poor's.
Of course, a very good year in the perpetually challenged airline industry would be a mediocre year in many businesses. But few in the industry are complaining, given the four-year bruising the industry endured after Sept. 11.
The industry lost $35 billion in that period, according to the Air Transport Association.
The trade group's earnings forecast for 2007, which includes U.S. passenger and cargo airlines, is for a profit of $4 billion to $6 billion.
That's double the expected tally for 2006. Airline analyst Roger King says the key to the strength of the recovery is the ability of airlines to continually raise fares.
Buoyed by flight cutbacks, airlines raised fares several times last year without scaring away passengers.
"So far, the consumer's not revolting," said King, of bond-research firm CreditSights.
Southwest has repeatedly raised its fares, albeit in small increments. CEO Gary Kelly said the airline was seeing some pockets of resistance to higher fares in the second half of 2006.
It raised fares during the holidays, so analysts will be looking for further insights from Kelly when the airline kicks off earnings season Wednesday with its fourth-quarter results and conference call.
Southwest, the industry leader in profits, is expected to report a fourth-quarter profit of 13 cents per share.
US Airways is also expected to be profitable, with per-share earnings of 80 cents per share, as it has led the industry in revenue gains thanks to higher fares. The airline cut flights as part of the America West-US Airways merger.
JP Morgan analyst Jamie Baker called the airline's profits robust, even after the company tweaked its projections slightly downward last month. He said the airline's profitability "stands in sharp contrast" to projected losses at American, Continental and United.
Analysts are forecasting a loss for many airlines for the quarter, a reversal from forecasts of almost across-the-board profits even though the fourth quarter is airlines' weakest.
Bookings, which were on a tear for most of the year, didn't turn out as strong as expected and, in some cases, holiday storms hurt business.
Frontier Airlines said December blizzards in Denver cost it about $12 million. But that's in the past. The focus is now on 2007.
In addition to the industry's improving foundation and a sharp drop in oil prices this year, the prospect of mergers has industry watchers frothing. Airline stocks are up sharply in anticipation of deals.
Bear Stearns analyst David Strine calls all the merger talk, started by US Airways' bid last fall for Delta, the "game changer" this year. If US Airways and Delta combined, he said, the industry's already-modest growth plans of about 3 percent would fall to 1 percent because US Airways has said it would shrink the combined airline's fleet.
Fewer added seats mean more chances to raise fares.
"Mergers and acquisitions could turn what we believe is a reasonably sturdy recovery cycle into a super cycle," Strine said in a report last week.
Posted 1/15/2007 9:54 AM ET
