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Cheaper fuel helps Southwest, United post record 2Q profits

🕐 3 min read

DALLAS (AP) — Cheaper fuel and full planes are adding up to record airline profits, and the carriers are sharing the bounty with stockholders.

They’re finally even giving passengers a break on fares.

Southwest Airlines and United Airlines posted record second-quarter earnings on Thursday even though Southwest’s revenue grew just 2 percent and United’s declined from a year ago. That’s because they are paying about a buck less per gallon for jet fuel this summer — savings that totaled nearly $1 billion for United compared with last summer.

Southwest Airlines Co. earned a record $608 million in the second quarter — a 31 percent increase from a year ago, and the airline’s ninth straight record-profit quarter. United Continental Holdings Inc. posted a record $1.2 billion profit.

Both airlines announced they were passing some of the gains to investors by buying back some of their own stock, which makes the remaining shares more valuable. United announced a $3 billion buyback plan, while Southwest said it would spend up to $500 million.

Both carriers also reported that passengers are seeing slightly lower fares.

Government figures indicate that U.S. airfares have risen faster than inflation for five straight years, but that string might end in 2015.

Southwest said its average one-way fare for the first part of summer was down 3 percent from last summer, a savings of more than $5. Partly that’s because of Dallas, where a change in federal law has led to a boom in new flights and ignited a fare war.

United didn’t report its average fare, but it noted that revenue for every seat flown one mile — a proxy for ticket prices — dropped 5.6 percent. United executives blamed weakness in Houston, an energy center that has been hurt by lower oil prices, and in Chicago and Dallas.

Airfares were rising when airlines held the supply of flights and seats nearly unchanged despite a steadily growing economy. Last month, the Justice Department began investigating whether United, Southwest, American Airlines and Delta Air Lines worked together to limit seats, a potential violation of antitrust laws. The airlines deny wrongdoing.

Southwest is growing now. It expects to increase passenger-carrying capacity about 7 percent this year and 5 to 6 percent next year.

“We have not grown Southwest Airlines in three or four years,” but now “we have opportunities to grow like we haven’t had in years,” CEO Gary Kelly said, citing Dallas and Houston. “We absolutely will grow this airline.”

That growth worries investors because it could further erode prices. United expects revenue per seat mile to decline between 5 and 7 percent in the third quarter; Delta predicted a drop of 4.5 to 6.5 percent, while Southwest is less bearish, predicting a 1 percent decline.

Analysts like Jim Corridore of S&P Capital IQ said they expect airlines will cut flights to shore up prices.

Dallas-based Southwest reported that a second-quarter profit, excluding one-time items like bonuses for employees who ratified union contracts, that slightly beat a forecast from analysts surveyed by Zacks Investment Research. Revenue rose just 2 percent to $5.11 billion, but Southwest saved $420 million or 29 percent on jet fuel.

United’s revenue fell 4 percent to $9.91 billion and was less than analysts predicted. Still, thanks to those fuel savings the Chicago-based company reported a 51 percent increase in profit that beat expectations.

Alaska Air Group Inc., the parent of Alaska Airlines, reported net income rose 42 percent to $234 million. Excluding one-time amounts, the adjusted profit of $230 million was a record for the Seattle-based company.

In afternoon trading, shares of Southwest rose $1.41, or 4 percent, to $36.53; United Continental slipped 53 cents to $56.54; and Alaska dropped $2.26, or 3.3 percent, to $73.57.

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