United Continental and US Airways reported smaller third-quarter profits Thursday after their bills for jet fuel spiked, showing the limits of the "charge more and fly less" strategy that airlines are relying on.
The five biggest airlines saw their jet fuel costs rise by $3.14 billion during the quarter that ended Sept. 30. They have been determined to raise fares to cover those big fuel bills and to fly only when and where they can do it profitably.
The results have been mixed. Profits shrank at United Continental and US Airways, but at least they had profits. American Airlines had higher expenses in addition to fuel, and parent AMR Corp. lost $162 million. Southwest Airlines Co. lost $140 million on fuel hedges. Only Delta Air Lines reported a bigger profit, compared with a year ago, up by 50 percent, to $549 million.
The strategy is right, and it will eventually produce larger profits instead of smaller ones, said US Airways Chairman and CEO W. Douglas Parker. "The industry has gotten itself to where it can adjust," he said. "It just happened too quickly."
Profits at US Airways dropped by 68 percent, to $76 million. A year ago, it earned $240 million. With higher fares, revenue rose by 8 percent, to $3.44 billion.
Profits for United Continental Holdings fell by 23 percent, to $653 million, from $852 million a year earlier. Revenue rose almost by 9 percent, to $10.17 billion.
Despite the heavy burden of fuel costs, things aren't as bad for airlines as they were three years ago. An oil price spike over the summer of 2008 caused huge losses, but that's not happening now.
"There would have been billion-dollar losses throughout the industry with oil where it is right now," said Standard & Poor's analyst James Corridore. "They've done a great job of cutting costs."