First Quarter Earnings: Some Airline Mergers Are More Equal Than Others

American, Delta, Southwest Soar While United Stumbles

An American Airlines 757 landing at LAX

By Paul Riegler on 25 April 2014
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The year’s first quarter was not very kind to airlines and travelers alike in terms of weather, but most major carriers nonetheless showed a profit.

American Airlines Group, formed late last year by the merger of American parent AMR and US Airways, and Southwest reported record earnings this week and Delta Air Lines reported excellent numbers as well.  JetBlue Airways’ profit narrowed sharply while United Airlines’ loss widened.  Indeed, American not only exceeded Wall Street’s expectations (as did Southwest) but it  surpassed the record profit it reported in 1998 as well.

The healthy numbers posted by American, Delta, and Southwest – which have all gone through major mergers in recent years – stands as a sharp contrast to United’s net loss of over $600 million, and shows that not al airline mergers are created equal.

Ironically, the first quarter is usually the weakest for the airline industry given its exposure to potential severe winter weather.  That of course was the case this year when what some called snowmageddon caused the industry to cancel well in excess of 100,000 flights.

American’s earnings are all the more impressive given that it was able to show a significant turnaround from the past decade as the restructuring of the past two years along with the merger with US Airways significantly strengthened the company, and this is only its first post-merger quarter.

“We’re very pleased with the progress we are making on the merger so far,” said American’s new CEO, Doug Parker, during its Q1 earnings call Thursday, who said he was confident the airline is on the right track, adding that  “it’s still very early in the process and the hardest work lies ahead.”

Southwest, which reported net income of $152 million, handily beating its first-quarter record of $121 million dating back to 2001, sees things similarly.  “The last year of the AirTran integration is right on track,” said its CEO, Gary Kelly, on the airline’s earnings call, adding that “the commercial aspect of the integration will be done by year end”

Contrast this statement with what United’s CEO, Jeff Smisek, opened the call with: “Our financial performance in the first quarter was disappointing,” he said. “I want to start by saying that this management team understands the importance of improving our financial results. Although the historic winter weather adversely affected our results this quarter, we know we can do better and are taking actions to do just that.”

Of course, the winter weather impacted every airline.  Nonetheless, American, despite saying that it lost $115 million in revenue and $60 million in operating profit, still managed to turn a profit.

In Orwell’s Animal Farm, “All animals are equal, but some animals are more equal than others.”  This is apparently true in the aviation industry as well.

(Photo: Accura Media Group)

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