Business cost reduction campaigns fueling airline earnings

on Friday, January 27, 2012

Business cost reduction campaigns fueling airline earnings The airline industry has struggled over the past decade amid volatile fuel prices, but two of the largest airlines in the U.S. reported strong earnings this week.

United Continental Holdings and JetBlue Airway both posted fourth quarter results that surpassed the expectations of analysts. Experts assert that airline carriers have had to raise fees and reorganize under intense competition and a tepid economic environment. JetBlue officials noted the company's business cost reduction campaign fueled its jump in profit and revenue.

United posted a profit of $109 million in its latest fiscal quarter. JetBlue, moreover, beat analysts' expectations, posting an operating income of $23 million in its latest fiscal quarter. JetBlue executives noted the airline carrier froze management hiring and pay through a cost reduction initiative.

Volatile energy prices have eroded profit margins at airline carriers over the past decade. While carriers largely absorbed massive losses in the past, they have aggressively raised rates on customers in an effort to drive revenue and profitability. Many carriers have extended their business cost reduction initiatives throughout their supply chains, overhauling spend management and indirect spend as a means of reducing overhead.

United, the world's largest airline carrier since its merger with Continental was approved, benefited in its latest fiscal quarter from efforts to improve efficiency. The company scrapped less popular flights over the past year, which helped increase attendance on some of its more trafficked routes. The Chicago-based airline said sales in the fourth quarter jumped 5.5 percent compared to the year prior, hitting $8.93 billion.

"We made significant progress in 2011 building the world's leading airline, while running a clean, safe and reliable operation," United chief executive officer Jeff Smisek said in a statement. "I am proud of the results we achieved by working together at the new United, and I look forward to seeing my co-workers share in our success when we distribute more than a quarter billion dollars of profit sharing on Valentine's Day."

JetBlue said net income for its full fiscal year hit $86 million, down from $97 million the year prior. The company's fourth quarter profit was still strong, company officials noted, rising more than 125 percent from the same period in 2010.

"JetBlue's solid fourth quarter results capped a very good year for JetBlue," JetBlue chief executive Dave Barger said. "Throughout 2011, we executed on our network strategy in key markets such as Boston and the Caribbean, resulting in record revenue performance.  At the same time, we maintained our focus on cost control while running an efficient operation, which helped mitigate the impact of rising fuel prices."

Airline carriers have increasingly invested in oil sourcing over the past few years, as they struggled to keep costs down amid surging oil prices. Carriers are carefully eying geopolitical situations throughout the world as they work to determine whether oil prices will surge unexpectedly in 2012.

While other airlines are planning to scale back flights this year, JetBlue officials said the company would augment flight and seating capacity across its fleet. Executives said that they planned to increase seating capacity as much as 11.5 percent in the current fiscal quarter. For the full 2012 fiscal year, the airline carrier said it would expand seating capacity as much as 7.5 percent.

Delta, Southwest and U.S. Airways also beat analysts' expectations in the fourth quarter, Bloomberg reports.



 

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