Compared with their checkered track record, major airlines are enjoying boom times.
Planes are full, and jet fuel is still much cheaper than it was last year. The four biggest U.S. carriers just reported a collective second-quarter profit of $3.9 billion.
And yet investors seem to be looking past the bottom line. They have become obsessed with fare prices -- falling now for more than a year -- that may foreshadow thinner profits in the future.
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When the airlines held calls this month to discuss their second-quarter operations, investors pressed them to reduce flights and the supply of seats in order to drive up fares. They cheered when Delta Air Lines Inc. and United Continental Holdings Inc. said that they would trim growth plans in the fourth quarter -- sending shares of both higher.
And they hammered shares of Southwest Airlines Co., which announced no such pullback -- and showed "no sense of urgency," according to Wolfe Research analyst Hunter Keay. Shares plunged 11 percent, although a massive Southwest technology outage that stranded tens of thousands of its passengers the day before earnings came out may be partly to blame.
On Friday, American Airlines Group Inc. became the last of the big four to report results. American, the world's biggest airline, earned $950 million in the second quarter, beating Wall Street expectations.
Still, profit fell 44 percent from a year ago (partly due to a tax provision), revenue per mile slipped by more than 6 percent on lower average fares, and American said that figure will fall again in the third quarter -- even if by a smaller percentage.
"It's difficult to believe we'd ever be excited" about American's forecast of 4.5 percent to 6.5 percent lower revenue per mile, but "we'll take it," said JP Morgan analyst Jamie Baker.
For the second quarter, American said that, excluding one-time costs, it earned $1.77 per share. That easily beat the expected per-share earnings of $1.68 coming from analysts, according to a poll by FactSet. Revenue fell 4 percent to $10.36 billion, but that also edged out Wall Street expectations for $10.32 billion.
American shares rose $1, or 2.9 percent, to $35.96 in afternoon trading.
The airlines will face more pressure for measured growth (nobody is talking about shrinking yet) if revenue trends don't improve this year.
Right now even business travelers, considered less stingy than vacationers, are enjoying a relative bargain. All airlines said pricing was weak for tickets bought on short notice -- often by corporate travelers.
"Corporate demand is strong," American's president, Scott Kirby, said on a conference call, "but we have a lot of low fares, so they are getting a deal right now."
Kirby said American will boost revenue by at least $1 billion a year once it starts offering both a bare-bones fare to compete with discounters like Spirit Airlines, and a "premium economy" ticket for people wanting a better seat.
The company is also deferring costs, delaying the delivery of 22 Airbus planes.
For the four biggest U.S. airlines, second-quarter profit and third-quarter forecast of lower revenue for every seat flown one mile:
-- American: 2Q net income $950 million; 3Q revenue per mile down 4.5 percent-6.5 percent
-- Delta: 2Q net income $1.55 billion; 3Q revenue per mile down 4 percent-6 percent.
-- United: 2Q net income $588 million; 3Q revenue per mile down 5.5 percent-7.5 percent.
-- Southwest: 2Q net income $820 million; 3Q revenue per mile down 3 percent-4 percent.