Niche Airlines Post a Strong Quarter

Southwest, America West and Alaska Airlines are this quarter's winners. The biggies lagged as a result of international turmoil.
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Now that

Alaska Airlines

(ALK) - Get Report

has reported, nine of the 10 major airlines, with the exception of

TWA

(TWA)

, have reported earnings for the quarter ended Dec. 31.

Since TWA says it will be another two to three weeks before it reports, we'll let TWA sit for the time being. Needless to say we don't think such a late announcement bodes well for the company's results.

The Best of the Quarter

There were three stars:

Southwest

(LUV) - Get Report

,

America West

(AWA)

and Alaska Airlines. It's not a coincidence that the niche players did the best. They also have little to no foreign exposure.

Delta Air Lines

(DAL) - Get Report

, while reporting its worst revenue per available seat mile, or RASM, and yield figures since 1992, nonetheless brought in the best results of the top four.

Continental

(CAIB)

held its own,

US Airways

(U) - Get Report

was very disappointing,

AMR

(AMR)

was surprisingly disappointing,

UAL

(UAL) - Get Report

was about as expected and

Northwest Airlines

(NWAC)

-- well, you know that story.

Overview of Results

One of the blessings of following this industry is the reams of operational statistics it produces each quarter in addition to the basic financial results. We always focus more keenly on the operational statistics than the financial ones. Last quarter, we honed in on cost per available seat mile, or CASM, figures to see who was keeping the lid on expenses and who was not. If the economy was going south, we were more interested in those airlines that were holding their costs down.

This quarter, we concentrated on revenue. We had expected both yield and RASM to be under pressure this past quarter, and especially in December.

(Yield is the amount of money an airline makes off the tickets that are sold. RASM is revenue spread across all the available seats that were for sale and is the usual financial benchmark that most airlines obsess over.)

Short and sweet? Most of the majors reported pretty hefty drops in both measures of revenue strength. Of the nine majors that have reported, we would have to say that we were most disappointed by the results of American Airlines. American posted a decline in RASM of 4.4% and a drop in yield of 5.2%.

But to be fair, American is also sitting on a hefty amount of international exposure, most notably in Latin America and transatlantic routes. The airline, which reported earnings per share that were 16 cents below the

First Call

analyst estimate, blamed its results on continued softness in the Latin American markets, fare pressure on its trans-Atlantic routes and fare pressure domestically.

American also got hit hard with weather-related operational expenses in December.

OK, we can live with this. We weren't happy about it, but we can live with it.

In the case of US Airways, the airline showed RASM down 5.5% and yield down 4.6%. On the surface, that seems in line with other results, but remember that US Airways has very limited international exposure. These dips were recorded primarily on domestic routes, and confirmed earlier suspicions: You live by high-yield markets and you die by them when fares are ratcheted down by competitors.

Southwest Airlines, America West and Alaska Airlines, meanwhile, all bucked the trend of the big boys (yes, United's numbers were less than enthralling as well), and posted very good results, considering the overall slowdown.

Southwest posted a 0.5% gain in RASM for the quarter, and a 0.9% decline in yield, in addition to growing capacity at 7%. Not only did it grow capacity at 7%, it recorded 8% revenue growth. Translation: There was fare pressure, but the airline still continued to grow at one of the fastest rates of the majors, and it still managed to keep its load factor up. Load factor for the quarter increased by 0.8 point. Herb Kelleher, Southwest's CEO, said last week that first-quarter bookings for the airline look good. He was the only airline management person who was remotely optimistic for first-quarter results.

America West also had a good quarter. The airline, all dressed up and just waiting to go to the highest bidder, posted an increase of 0.2 percentage point in yield, and a drop of 0.3% in RASM. Net income was up marginally, and the company also lost the distinction of having the lowest cost per available seat mile, or CASM, of the majors. AWA posted a 7.34-cent CASM. Southwest posted a 7.23-cent figure. These are the things that bragging rights are made of.

However, on the year, AWA posted a 7.29-cent figure, while the boys in Dallas posted 7.32. Score the major bragging rights for the guys that are up for grabs.

Alaska Airlines also had a good quarter. While RASM for the airline was down 2.5%, and yield was down 3.5%, net income at the airline was up 78%.

Alaska Airlines, too, is growing like a weed. While adding some 9.3% to capacity in the quarter year over year, it still managed to increase its load factor, and shaved 5% off its CASM figure for the quarter, which we like to see.

And finally, contrary to some, we were not all that disappointed with Continental's numbers for the quarter. We knew it would have yield pressure, and it did, dropping back some 4.6% for the quarter. But the airline, just like Southwest and Alaska, is growing at a hefty clip.

Continental put an additional 8% of capacity out there last quarter, increased its load factor by a point, and cut CASM by 2.5%. While its financial results were not as strong as some of the airlines (net income was down 9.6%), we were not overly distressed by its operational results.

Holly Hegeman, based in Dallas, pilots the Wing Tips and Traveling With Wings columns for TheStreet.com. At the time of publication she was long Southwest, though positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. You can usually find Hegeman, publisher of PlaneBusiness Banter, buzzing around her airline industry Web site, at www.planebusiness.com.