American Airlines posts record profit of $942 million

Less than a year after leaving bankruptcy, American Airlines Group is flying high.

The Fort Worth-based carrier, which merged last December with US Airways, said Thursday that it made almost $1 billion in profit in the third quarter, the best quarterly financial performance in its history.

Meanwhile, Dallas-based Southwest Airlines reported a record profit of $329 million as the industry benefits from fuller airplanes, a string of mergers and dropping oil prices.

As the busy holiday travel season nears, executives said bookings remain strong and aircraft have fewer empty seats. And they report little impact from the recent Ebola cases.

Asked on a conference call whether Ebola was having an impact on Southwest’s bookings, CEO Gary Kelly responded, “None. Negative. Nada.”

American President Scott Kirby said bookings dropped one day last week after a congressional hearing on the issue but have otherwise followed normal trends this month.

American posted a $942 million profit as it generated $11.1 billion in revenue for the quarter. CEO Doug Parker, who spearheaded the merger while leading US Airways, said the integration of the airlines is going well.

“The great work by our team thus far gives us confidence that we’re on the right track,” Parker said.

American said it expects to merge its two frequent-flier programs in the second quarter next year and combine its reservations systems later in 2015.

Excluding one-time accounting items, American said its net income was $1.2 billion, or $1.66 a share, beating Wall Street expectations of $1.63 a share, according to FactSet Research.

Shares of American (ticker: AAL), which have gained over 50 percent this year, closed up $1.44 at $38.48 on Thursday.

The carrier paid an average of $2.98 per gallon of aircraft fuel in the quarter, down from $3.03 in the third quarter of 2013.

Cowen and Co. analyst Helane Becker told investors that American will benefit from lower fuel prices, which continue to drop along with the price of oil.

“American does not hedge jet fuel, and although it is in the process of replacing its older fleet with younger, more fuel-efficient aircraft, it still uses more jet fuel than any other major (or minor) airline,” Becker wrote in a research note. “As a result, it is more leveraged to lower jet fuel prices; this will help (fourth-quarter) margins.”

The carrier said it ended the quarter with about $8.8 billion in cash and short-term investments, including $875 million in restricted cash. The company plans to pay a 10-cent-per-share dividend to shareholders Nov. 17.

American’s flight attendants are voting on a new contract agreement that includes pay raises but no profit-sharing. American said it expects vote results on Nov. 9 or 10 and will begin negotiating a joint contract with its pilots union that week as well.

Separately, Southwest reported a $329 million profit as it carried more passengers on fewer flights during the third quarter.

The giant low-cost carrier said revenue grew 5.6 percent to $4.8 billion even though the average passenger fare increased by less than 1 percent to $160.74.

With the expiration of Wright Amendment restrictions, Southwest began flying long-haul routes from Dallas Love Field last week. Partly boosted by introductory fare sales, those flights have enjoyed load factors over 90 percent, Kelly said.

“We don’t launch new routes and have this kind of performance,” Kelly said. “Dallas is performing exceptionally well.”

Southwest told analysts that much of the carrier’s network capacity growth next year will be tied to new flights from Love Field and its expansion at Washington, D.C.’s Reagan National Airport. It also expects to add three or four international destinations next year but with few flights.

Excluding one-time accounting items, Southwest said income was $382 million, or 55 cents a share, beating Wall Street expectations of 53 cents, according to FactSet Research.

Shares of Southwest (ticker: LUV) declined 95 cents, or nearly 3 percent, to close at $33.25.

Jet fuel prices continued to decline as Southwest said it paid $2.94 per gallon, down from $3.06 in the third quarter of 2013.

The company also paid out about $100 million in profit-sharing to its employees in the quarter. On Wednesday, Southwest reached a tentative contract agreement with its passenger service agents that included pay raises and signing bonuses.

Several other airlines reported third-quarter earnings Thursday:

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This story was originally published October 23, 2014 8:15 AM.

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