Profits for America West, Alaska

Surging travel demand and higher fares help the airlines.
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Alaska Air

(ALK) - Get Report


America West


rode surging air travel demand and higher fares to profits in the second quarter.

But while America West, which is in the process of merging with bankrupt

US Airways


, blew past analyst estimates, Alaska narrowly missed them and acknowledged a disappointing on-time flight performance.

Shares of Alaska Air fell 70 cents, or 2%, to $33.52, on what was a down day for most airline stocks. Shares of America West gained 21 cents, or 2.6%, to $8.40. The Amex Airline Index fell 2.27%.

Alaska, the parent of Alaska Airlines and regional carrier Horizon Air, swung to a profit of $17.4 million, or 56 cents a share, from a year-earlier loss of $1.7 million, or 6 cents a share. Excluding special items, net income was $24.7 million, or 74 cents a share, a penny short of the 75-cent average analyst estimate from Thomson First Call.

Revenue rose to $756.5 million from $701.3 million a year earlier, and was ahead of the $739.2 million analyst consensus.

"Although we are seeing gains in passenger loads and ticket prices, we are facing operational problems, which, if we don't correct them, will impact the long-term reputation of Alaska Airlines," says Bill Ayer, Alaska Air's chairman and CEO. "Our primary focus is on improving our on-time performance in order to deliver on customer promises and reduce the stress on our employees."

Traffic increased 5.2% at Alaska Airlines, on a 1.6% decrease in capacity, allowing the airline to better fill its planes. Its load factor, which measures the average percentage of seats filled, increased to 77.9% from 72.8% a year earlier. Having fuller flights bolstered unit revenue, which increased 8.4%, but higher fares were also a factor. Yield, which measures average fares, improved by 2.5%.

The load factor also improved at Horizon Air, and unit revenue improved by 5.2%, but yield fell 1.9%.

Alaska Air ended the quarter with $726 million in cash and short-term investments, down from $764 million at the end of the first quarter.

Meanwhile, America West said second-quarter net income was $13.9 million, or 29 cents a share, up from $10.7 million, or 20 cents a share, a year earlier. Excluding items, net income totaled $20.9 million, or 41 cents a share, in the latest quarter, well ahead of the 13-cent consensus forecast.

Revenue increased 20% to $833 million from $694.2 million a year before. It also exceeded the $790 million analyst consensus.

Passenger traffic jumped 8% year over year, while America West held capacity growth to 2.7%. This resulted in a second-quarter load factor of 82.3%. The higher load factor combined with a 6.5% increase in yield to boost unit revenue by 11.9% year over year.

America West ended the quarter with $413.9 million in cash and short-term investments, up from $345.3 million at the end of the first quarter.

Both carriers benefit from hedges on some of their fuel needs. Even so, record oil prices in the second quarter drove up their expenses.

For example, America West's fuel bill increased 43.6% to $191.0 million from $133.0 million in the second quarter of 2004. Fuel hedging gains of $11.4 million failed to fully offset the rise.

"While we are pleased with our revenue performance, these improvements are not enough to offset the ongoing high price of fuel," says Derek Kerr, America West's CFO. "Fuel expense for the quarter was the company's greatest expense item, exceeding even salaries and benefits for only the second time in company history, and we do not see any signs of this trend altering itself in the foreseeable future."