Mon | Sep 25, 2023

Tale of two airlines: Big profit at American, Southwest loss

Published:Sunday | January 29, 2023 | 1:12 AM

American Airlines and two smaller carriers gave more proof Thursday of the recovery in air travel, posting better-than-expected profit for the fourth quarter, while Southwest Airlines lost money because of massive flight cancellations last month.

Southwest said it expects another loss in the first quarter from lingering effects of last month’s meltdown, although it said booking trends for March were encouraging.

Southwest reported a US$220 million loss after taking a hit of US$800 million from cancelling nearly 17,000 flights over the last 10 days of December. The airline had signalled that it would lose money, but the adjusted loss of 38 cents per share was worse than the seven cents per share that Wall Street expected.

The airline said it will lose up to US$350 million in first-quarter revenue because the December cancellations hurt bookings for January and February.

The Transportation Department is investigating whether Southwest scheduled more flights than it could realistically expect to handle, which it says would violate federal laws against deceptive trade practices. Southwest says its schedule was “thoughtfully designed” and the airline had ample staffing.

Neither the December disruptions nor the government investigation is causing Southwest to scale back its growth plans, which raised some eyebrows.

“We are surprised to see that capacity growth expectations have not changed significantly” for the first quarter or 2023 as a whole, Cowen analyst Helane Becker said in a note to clients. “This could be a cause for future concern given the severe operational issues” over the holidays.

Becker said even though cancellations have moderated in January, Southwest is still “well above” levels at other US airlines.

Southwest blames an “unprecedented storm” that swept the country around Christmas. Other airlines recovered more quickly while widespread cancellations at Southwest dragged on for days.

On Thursday, CEO Robert Jordan again apologised for the meltdown.

“We have swiftly taken steps to bolster our operational resilience and are undergoing a detailed review of the December events,” he said. The company has hired outside experts and created a committee of its board to review the events and re-examine Southwest’s technology priorities.

Meanwhile, American reported a profit of US$803 million. Excluding special items, earnings per share totalled US$1.17. Analysts expected US$1 per share, according to a FactSet survey.

Revenue was a fourth-quarter record of US$13.19 billion, a 40 per cent increase from a year earlier and better than analysts expected, leading to record annual revenue.

The Fort Worth, Texas-based carrier returned to a profit for the full year and forecast 2023 earnings in a range of US$2.50 to US$3.50 per share. For the first quarter, American expects to break even, based on demand and fuel trends.

The results at American Airlines Group Inc added to the picture of strong demand for air travel that was reflected in an US$843 million profit for United Airlines and US$828 million for Delta Air Lines.

Elsewhere in the sector, JetBlue Airways Corp said Thursday it moved to a profit in its fourth quarter after reporting a loss in the year-ago period. The airline earned US$24 million, or 7 cents per share. Its adjusted profit was 22 cents per share, beating Wall Street’s view of 19 cents per share.

Revenue came in at US$2.42 billion, slightly higher than analysts expected.

For 2023, the New York-based airline expects to earn up to US$1 per share on an adjusted basis with “margins approaching pre-pandemic levels”.

Alaska Air Group Inc posted a fourth-quarter profit of US$22 million, or 17 cents per share. Adjusted earnings were 92 cents per share. That is 2 cents better than what Wall Street was calling for.

Revenue totalled US$2.48 billion, missing Wall Street’s estimate of US$2.5 billion. The company said its annual revenue of US$9.65 billion was the highest in Alaska Air’s history.