AMR, Southwest profit bobs with jet-fuel cost


January 18, 2007|By Bloomberg News

NEW YORK -- AMR Corp. earned a surprise fourth-quarter profit and Southwest Airlines Co. said its net income fell, demonstrating how fuel-pricing decisions dictate carriers' finances even when their planes are full and fares are rising.

American Airlines parent AMR posted a $17 million profit compared with a year-earlier loss as its jet-fuel bill slid 8.5 percent. Southwest's profit dropped 19 percent on a 41 percent jump in fuel spending.

Fuel expense rose at Southwest, the most profitable U.S. airline, as contracts for locking in prices also increased. American paid less per gallon when jet fuel fell, overcoming the drag from hedging some purchases at above-market prices.

"Fuel is going to be the main driver" for profit growth, said Jim Corridore, an analyst with Standard & Poor's in New York. "As long as there's a surplus of oil there's potential for marked improvement for airline results."

American's results marked its first full-year and fourth-quarter profit since 2000. Net income at the world's largest airline was 7 cents a share, beating analysts' expectations.

Southwest's profit was $57 million, down from $70 million a year ago. Excluding costs for fuel hedging, profit was 12 cents a share.

Shares of AMR fell $1.45, or 3.6 percent, to close at $38.78 yesterday on the New York Stock Exchange, down from a six-year high, as prices of oil and jet fuel gained. Southwest declined 67 cents, or 4 percent, to $15.90.

AMR posted a full-year profit of $231 million after losing $8.12 billion from 2001 through 2005 as it skirted bankruptcy and won concessions from employees.

Fourth-quarter revenue rose to $5.4 billion, a gain of 4.4 percent. American's load factor, a measure of how full its planes were with paying passengers, was a record 78.8 percent, up from 77.9 percent a year earlier. Higher travel demand helped American join in 10 industrywide fare increases last year.

American paid $1.88 a gallon for jet fuel last quarter, compared with $2.02 a year earlier. It trimmed fuel consumption by 1.3 percent as it pared capacity, excluding its American Eagle regional unit, by 1.1 percent.

Also, the airline bought a third of its fourth-quarter fuel needs in advance pegged to a price equivalent to crude oil at $68 a barrel. The average price of crude last quarter was $60.16.

Southwest's revenue increased 15 percent to $2.28 billion. Excluding costs tied to accounting for its own fuel hedges, profit rose 19 percent to $96 million, or 12 cents a share, from $81 million, or 10 cents a share, a year earlier.

Full-year profit was $499 million, or 61 cents a share, compared with $484 million, or 60 cents, in 2005, Southwest said. It was the 34th consecutive annual profit at the world's largest low-fare carrier.

The Dallas-based airline, the dominant carrier at Baltimore-Washington International Thurgood Marshall Airport, paid $1.56 a gallon for jet fuel last quarter, up from $1.22 a year earlier, reflecting the reduced hedge position. Southwest's fuel consumption rose 9.2 percent as it boosted capacity by 10 percent.

Southwest's expected fuel use is 95 percent hedged for the rest of 2007 at the equivalent of $50 a barrel of crude, and the company has hedges in place on at least a portion of its fuel needs through 2012. Fuel is the airline's second-largest expense, after labor.

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