At long last, major airlines are imposing fare increases without having to quickly withdraw them. Some carriers are even experiencing better-than-expected revenue.
That's the good news. The bad news is that crude oil prices remain around record high levels, meaning most airlines are still headed for big first-quarter losses.
"For the first time in years, airfares are rising, but high oil prices dampen any hope of profits," wrote Goldman Sachs analyst Glenn Engel in a research note. "At $55-a-barrel oil, even low-fare carriers cannot make money."
A fourth round of industry fare hikes initiated late last week by
Delta Air Lines
has largely stuck, meaning some round-trip fares have risen as much as $60 in the past month or so. The increases haven't been across the board, however, because network carriers have avoided instituting them on routes with strong competition from low-cost airlines.
The fare hikes likely factored into surprisingly strong unit revenue reports from
America West Airlines
AMR says unit revenue in its mainline operations, which excludes smaller, regional flights, likely rose between 3.5% and 4.5% in the first quarter. Continental reported a 4.5% to 5.5% year-over-year increase for March. And America West says unit revenue increased "well over" 10% in March from a year ago.
Analysts question whether unit revenue at other airlines, which did not report unit revenue, will be so strong.
"The strength at these carriers could be partially due to the fact that they are less exposed to the intense fare competition in the eastern U.S.," said Brian Hayward, senior equity analyst at Zack's Investment Research.
The East Coast has become a harsh battlefield, with
offering lots of cut-rate competition.
Analysts also caution that Continental's and America West's unit revenue increases benefited from Easter's early date this year. Continental acknowledged as much in its report, attributing 2.0 to 3.0 percentage points of its increase to holiday travel. The airline expects a corresponding negative impact on April's unit revenue change.
Nonetheless, any positive top-line news is welcome, because industry unit revenue has been under pressure from a glut of capacity and stiff price competition. The success of the recent fare hikes also has encouraged analysts, as airline attempts to lift prices last year sputtered.
Still, the cost the hikes are designed to offset -- jet fuel -- remains stubbornly high, with crude oil well above $55 a barrel.
"The fare hikes are a move in the right direction," said Hayward. "But fuel has gone up so much more, and airlines are still facing much higher costs in the first quarter than in the fourth quarter."
So, while Continental's revenue numbers encouraged analysts to improve their first-quarter estimates, they're still forecasting large losses for the airline. Merrill Lynch's Michael Linenberg changed his from a loss of $3.20 a share to a loss of $2.85 a share.
Investors should expect lots of red ink elsewhere, according to consensus estimates from Thomson First Call. AMR is expected to weigh in with a loss of $1.87 a share, Delta with a loss of $4.62 a share, and Northwest with a loss of $4.07 a share.
In fact, the only major carriers expected to record first-quarter profits are JetBlue and
, by dint of their fuel-hedging programs. On average, analysts expect Southwest to earn 4 cents a share and JetBlue 2 cents a share.
Jim Corridore, equity analyst at Standard & Poor's, says he's hopeful the fare increases and the stronger revenue numbers mark the start of a positive trend. But if fuel continues its upward march, that trend may not be much help.
"If oil prices continue to rise there's no way that unit revenue can compensate," he said.