Fare hikes help United Continental and US Airways

AP News
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Posted: Jul 21, 2011 5:50 PM
Fare hikes help United Continental and US Airways

Fare increases gave United Continental and US Airways profitable quarters despite the financial damage the airlines suffered from sharply higher fuel prices.

On Thursday both airlines reported smaller second-quarter profits than a year ago _ down almost 12 percent at United Continental, and a 67 percent drop at US Airways.

Airlines have put growth plans on the shelf and, especially at United, focused on getting more business travelers on board. That has allowed the airlines to raise fares. On Thursday, some airlines attempted a fare increase of up to $20 round-trip.

"The reason they're able to raise fares is because of choices they've made by keeping capacity down, by looking to raise fares instead of gain market share, by trying to attract higher-yielding passengers in the cabin rather than just filling the cabin, by waiting longer to put fares on sale," said Standard & Poors airline analyst James Corridore.

The boost in ticket prices is a reaction to high fuel prices. American Airlines parent AMR Corp. said Wednesday it paid $547 million more for fuel in the second quarter than a year ago. It lost $286 million.

United Continental Holdings Inc. earned $538 million in the quarter. Revenue rose more than 10 percent to $9.81 billion, even though traffic was flat. That's the fare increases at work. Fuel costs rose by $1 billion, or 45 percent from a year ago. Hedging gains of $278 million took away some of the sting.

US Airways Group Inc. earned $92 million. Revenue rose more than 10 percent, to $3.5 billion. Its fuel cost jumped almost 54 percent to $948 million.

Oil prices haven't reached the record levels of 2008, but they remain high. Average jet fuel prices for this year are on track to be as high as the 2008 average, maybe higher, said US Airways Chairman and CEO Doug Parker.

US Airways paid an average of $3.10 for a gallon of jet fuel in the first half of the year, up 40 percent from the first half of 2010.

President Scott Kirby said some airlines ran sales that lowered fares in June. Before that, planes weren't quite as full but passengers were paying more, which Kirby said worked in the airline's favor. He said he's "cautiously optimistic" that prices bottomed in June and will begin to climb again.

Even with Thursday's attempted fare increase, the pace has slowed. The last successful increase was in April, according to Rick Seaney of FareCompare.com.

United Continental it's still been able to raise fares through "revenue management strategies." In the airline industry, that includes tactics such as managing the number of seats sold at a discount and changing prices as a plane fills up. United Continental's average fare per passenger rose 12.5 percent to $273.

United said baggage fees fell for the quarter because more travelers qualified to check bags for free. Fliers with United Continental-branded credit cards can check a bag for free, as can high-level frequent fliers.

Airlines are also reducing the amount of flying they do, allowing them to charge more for the seats that are available. United Continental said its third-quarter capacity will fall 1 percent. It will drop nearly 3 percent in the fourth quarter, compared to a year earlier.

Fuel also hurt results at Alaska Air Group Inc., the parent of Alaska Airlines. Second-quarter net income fell by half to $28.8 million, even though traffic rose 10 percent and revenue rose 13.7 percent to $1.11 billion.

Adjusted profits at United Continental were slightly higher than analyst estimates, while US Airways and Alaska matched expectations.

Shares of Chicago-based United Continental rose 6 cents to close at $20.34, while US Airways, based in Tempe, Ariz., was unchanged at $6.90. Seattle-based Alaska Air rose 25 cents to close at $65.95.