Low-Cost Carriers Steal the Show

Low-cost carriers nabbed the spotlight in the second quarter, posting strong profits and surpassing earnings estimates, while the old hub-and-spoke airlines saw deep losses and struggled to right their businesses.

The quarter serves as a good indication of how low-cost carriers plan to make network carriers miserable down the road, by boosting capacity in rivals' key hubs and expanding into profitable markets.

"The network carriers are still losing millions, but at least they're heading in the right direction with costs ... But JetBlue (JBLU) and other low-cost carriers came in gangbusters," said Prashanth Kuchibhotla, senior airline analyst at eCLIPSE Advisors.

Indeed, Continental (CAL), Delta (DAL), Northwest (NWAC) and AMR (AMR) unit American had a combined second-quarter loss of $778 million, excluding the reimbursement for security fees they received from the government.

In comparison, Southwest(LUV), JetBlue and AirTran (AAI) had a combined second-quarter profit of $151 million, excluding government help.

Both old-line and low-cost carriers were profitable when government assistance was factored in, with the four network carriers raking in a $415 million profit in the second quarter when reimbursements are added in, compared with a profit of $341 million for the trio of low-cost carriers.

The government aid, which will expire on Sept. 30, masked what was a very bad quarter for the network carriers and stole some thunder from the strength of the low-cost model. But as the chart below shows, six low-cost and regional carriers not only posted profits excluding charges, but also blew away analyst expectations.

The Second-Quarter Scoreboard Every single airline that's released second-quarter earnings has topped analyst estimates, with many showing improvement over last year, a sign the industry has finally hit bottom.
Carrier	2Q03 EPS*	2Q03 EPS Est.	2Q02 EPS
American	-$2.26	-$2.65	-$3.00
Delta	-1.95	-2.08	-1.34
Northwest	-1.86	-2.78	-1.08
Continental	-0.37	-0.83	-0.55
Alaska Air	0.03	-0.34	-0.11
Southwest	0.13	0.12	0.10
AirTran	0.28	0.19	0.07
America West	0.33	0.19	-0.38
JetBlue	0.38	0.28	0.22
ExpressJet	0.42	0.41	0.33
Atlantic Coast Air	July 30	0.15	0.31
SkyWest	July 30	0.24	0.33
United	Aug. 1	-5.34	-6.99
Mesa	No time supplied.	0.20	0.12
* -- Excludes government help. Source: Company Reports, First Call, TSC Research.