Headwinds Die Down for Airlines

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Like many companies post-crisis, airlines have been scrambling to cut costs and solidify their positions. The industry was one of the hardest hit and has historically attracted negative attention from consumers because of high costs and operational issues.

US Airways (NYSE:LCC) reported third quarter 2012 earnings that came in at $0.98 per share, beating estimates by about six cents. Revenue was up 2.8 percent year over year to $3.53 billion. Highlights include $245 million in GAAP net profit for the quarter, compared to $76 million in the quarter last year.

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While stock prices remain far below pre-crisis levels, shares of US Airways have climbed over 140 percent this year to date. The company is pursuing a merger with American Airways. At the recent earnings call, Delta CEO Richard Anderson said that, “Further industry consolidation will be overall quite good for Delta and quite good for the industry.”

Delta Air Lines (NYSE:DAL) reported third quarter 2012 earnings that came one one cent below expectations at $0.90. Revenue was up 1 percent year over year to $9.92 billion. At the end of April, the company announced that it would be buying a refinery near Philadelphia in a bid to reduce fuel expenses by $300 million annually. British Petroleum (NYSE:BP) will supply crude for the facility. Fuel accounts for roughly one third of operating costs, or $12 billion in 2011, and is on the rise.

The International Air Transport Association estimates that the airline industry will spend over $200 billion on fuel in 2012. Pressures associated with the high cost of jet fuel have spurred other cost cutting measures and airlines are flying fewer and closing down unprofitable routes. Delta is planning to cut costs by as much as $1 billion by retiring older jets.

The company will trade out its smaller planes for larger used Boeing (NYSE:BA) jets that it will buy from Southwest Airlines (NYSE:LUV).

Southwest has been taking over routes from AirTran Airways as its merger process continues. The company reported third quarter 2012 earnings last week — earnings per share came in at $0.13, in line with estimates, while revenue of $4.31 billion missed by $50 million, growing 0.6 percent year over year. The company has seen modest stock growth this year to date, but will continue to solidify its position heading into 2013 and full integration with AirTran Airways.

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