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The Honolulu Advertiser
Posted on: Friday, October 19, 2007

Despite poor service, airlines rake in profits

By Peter Pae
Los Angeles Times

The nation's airlines were late more often this summer, lost more baggage and bumped more passengers off flights in more than a decade. They also made more money.

Despite the worst summer ever for air travel, major airlines posted their largest profits in years during that period as they packed more passengers into fewer and smaller planes.

Profits for American Airlines, the nation's largest carrier, jumped more than tenfold to $175 million in the third quarter, while Delta Air Lines, the third largest, said net income tripled to $220 million compared with the year-earlier period. Profits would have been higher if not for rising fuel costs.

The results elated investors but fueled anger among consumer groups.

"I'm aghast there isn't more public outcry over this," said Kate Hanni, president of the Coalition for Airline Passengers' Bill of Rights, a consumer advocacy group based in Napa Valley, Calif. "They're making money hand over fist at the expense of passengers."

On Wall Street, initial jubilance with the better-than-expected results gave way to worries with another surge in fuel prices this week that could sink future airline profits. Rising fuel prices prompted some airlines to increase fares by $10 yesterday.

FLYING INTO PROFIT

But for now, airlines are having a banner year. Most of the profit gains came from cutting costs and packing more passengers into planes as airlines have had difficulty raising fares.

"It was the best quarter since 9/11," said Ray Neidl, analyst with Calyon Securities, adding that airlines were also able to sell more expensive tickets as they pushed international travel. "They loaded up the planes and had better seat management."

It's all part of the changes sweeping air travel in recent years. Domestic coach flights often mean narrower seats, less legroom, charges for food and in-flight entertainment. Some airlines take a no-frills approach and charge for baggage, pillows and seating assignments. At the same time, international flights have turned first-class travel into a big moneymaker with higher prices but also gourmet meals, spacious seats, more leg room and chairs that turn into beds.

Some frequent travelers tried to keep their emotions in check yesterday.

"I try not to get upset if there is nothing I can do anything about it," said Beth Butera, a computer analyst from San Clemente, Calif., who is a frequent flier resigned to service that is "sometimes really good and sometimes really bad."

Fare increases for domestic flights in 2007 have been modest or have had to be retracted because of resistance from passengers. Since 2000, when average domestic fares hit $422, plane tickets have dipped to an average of $380 with increased competition from low-cost carriers.

PLANES FULL

Big airlines such as Southwest Airlines, American and Delta said they had record "load factors," or the percentage of the plane filled by passengers, as they cut back on capacity or the number of planes flying.

Southwest, the nation's largest discount airline, said yesterday that third-quarter earnings jumped 238 percent to $162 million compared with the year-earlier period.

Meanwhile, No. 4 Continental Airlines reported net income of $241 million, up slightly from $237 million a year earlier.

United Airlines reports its earnings Tuesday. Analysts expect the airline to post profits similar to the record $274 million it reported in the second quarter.

But Wall Street is bracing for a downturn with record fuel prices. Fuel costs now account for airlines' largest expense.

An airline trade group estimated that every $1 increase in the price of a barrel of fuel increases industry fuel costs by $465 million. If the price of fuel remains high and fewer people fly, the airlines could be hit hard again after taking years to recover from Sept. 11, 2001.