For major U.S. carriers, first quarter brings revenue growth

By Kate Rice

Correction: A previous version of this report had outdated information about American Airlines. It said that American had direct-connect agreements with Priceline, Expedia, HRG and American Express. American currently does not have direct connects in place with Expedia, HRG or American Express.

Airlines reported revenue growth across the line and either profits or narrowed losses for Q1, which is typically a money-losing quarter for the industry.

Delta Air Lines reported net income of $85 million, the first time it's had a Q1 profit since 2000.

Southwest's higher fares and benefits from its merger with AirTran helped it increase its revenue by 2.3% year over year. However, its profits declined 40% from Q1 2012 because of lower gains from fuel hedging and other special items. Its net income was $59 million, down from $98 million a year ago.

American Airlines, still emerging from Chapter 11 reorganization, reported net income of $8 million, excluding reorganization and special items, results "which surprised everyone," said Robert Herbst, an airline consultant and principal of (Including special items and reorganization expenses, it saw a $341 million net loss, vs. a $1.66 billion loss in Q1 2012.)

American achieved a quarterly yield that was the highest in company history for any quarter and Q1 record revenue, said Virasb Vahidi, its chief commercial officer.

United Airlines reported a first-quarter 2013 net loss of $417 million, somewhat narrower than the $448 million loss it saw a year ago. Total revenue was $8.7 billion, an increase of 1.4% year over year.

Carriers said the year started out strong but that business started to flag in March.

Richard Anderson, Delta's CEO and president, said the airline saw a strong January and February, but bookings slowed in March. On the bright side, he said, macroeconomic factors that slow passenger sales tend to also push down oil prices. And he added that industry consolidation meant that airlines can manage capacity better so that revenue can match fuel costs.

Southwest CEO Gary Kelly said his airline saw record traffic and revenue performances in the quarter, despite all the "noise" surrounding personal income taxes and sequestration. He said business slowed in March and April, partly because of sequestration and the timing of Easter and Passover.

Execs talk ancillaries

Airline executives also talked about distribution and how ancillaries fit their economic models.

United said ancillary revenue increased 13% in the first quarter, with sales of Economy Plus seats up 40%. The airline's goal is to increase ancillary sales by at least 9% in 2013, said Jim Compton, United's chief revenue officer. Compton credited the revenue boost to an increase in more direct bookings, either on United's website or via its mobile apps.

In contrast, Kelly said that if Southwest — the only major carrier that doesn't charge for checked bags — were to begin charging for them now, it would harm the airline's bottom line.

Southwest's research suggests that implementing baggage fees would cost the airline $1 billion in the form of defecting customers, he said.
"I don't think ancillary revenues in today's environment are the answer to hitting our earnings target," Kelly said.

Southwest's secret sauce for the near future, he said, would be to optimize its route network. That means eliminating underperforming routes, redeploying aircraft and managing capacity.

"That will dwarf any ancillary fee benefit," Kelly asserted.

Separately, United said it would begin flying its 787s this month. Its first international 787 service will be new nonstop service between Denver and Tokyo Narita beginning June 10.

Follow Kate Rice on Twitter @krtravelweekly.

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