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US-Based Airlines Boast Record Profits

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Gone are the days of airlines filing for bankruptcy left and right, as well as reporting stagnating profits, empty planes and millions in losses. US-based air carriers announced record profits last week, as quarter two and the first half of the fiscal year came to a close. Several of them set all-time records, amidst dipping fuel costs and better-than-ever load factors.

Just 18 months ago, American Airlines Group (AAL) emerged from Chapter 11 bankruptcy protection. Friday, the company (which includes both American Airlines and US Airways) posted a record-high GAAP net income of $1.7 billion, up from $864 million year-over-year. The combined company is currently the world’s largest airline by revenue.

Just 18 months removed from bankruptcy, the world's largest airline by revenue is taking off.
Just 18 months removed from Chapter 11 bankruptcy, the world’s largest airline (by revenue) is taking off.

United Continental Holdings (UAL) similarly announced a net income of $1.2 billion, up 51.2 percent year-over-year, a record for the airline. Revenues actually dipped a little (down four percent year-over-year). However, costs fell 10 percent. United additionally authorized a $3 billion share buyback, indicating that it believes that the current stock price is undervalued, and that the airline has strong hopes for future growth.

Southwest Airlines (LUV) investors are hearing a familiar story, with a net income of $608 million, up 30.8 percent. Southwest CEO Gary Kelly says that capacity (available seat miles) grew seven percent year-over-year, and that the company will target five to six percent growth going forward. Notably, fuel savings helped Southwest considerably — the airline spent $1.01 billion on fuel, which represents a $420 million savings (29.5 percent) year-over-year.

Alaska Air Group (ALK) similarly posted a record-high $234 million in net income, up 41.8 percent. On the no-frills side, Spirit Airlines posted a smaller (but respectable) 18.3 percent growth in net income, up to $76.7 million. Spirit CEO Ben Baldanza noted that Spirit’s average ticket revenue per flight segment was down 19.4 percent year-over-year due to price competition from the major US airlines — a strategy that American Airlines president Scott Kirby said the company is pursuing aggressively.

Delta announced its earnings about two weeks ago, beating analysts’ estimates yet again for the tenth consecutive quarter and earning $1 billion in net income. The airline expects route capacity to be flat over the next year, accounting for an expected dip in international capacity offset by domestic growth.

The news isn’t as rosy for airlines outside the US. Across the Atlantic, despite a 2.4 percent increase in revenue, Air France-KLM reported a loss of €638 million ($700.3 million) in the first half, a period that covers January through June. That’s a year-over-year increase from previous losses of €619 million ($689.9 million).

Despite the sky-high profits posted by US-based airlines over the past week, stock prices for each airline have been mostly flat. Investor skepticism remains high, and only time will tell if airlines can keep up this type of net income growth.

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