Updated from 7:08 a.m. EDTNow that Delta Air Lines ( DAL), Continental Airlines ( CAL) and Southwest Airlines ( LUV) have released first-quarter earnings, investors can handicap the second wave of airline results due next week because a few key themes are already emerging, which will impact the second quarter and the rest of the year as well. One thing that is becoming unmistakably clear in the first quarter is that legacy carriers no longer control pricing -- the low-cost carriers do. Five years ago, the idea that AirTran ( AAI) could bully Delta into permanently lowering fares wasn't something Delta management would have admitted. Now, they're openly admitting that harsh reality, which is spreading as the low-cost competition debuts in more and more markets. "The majority of our yield erosion is due to low-cost carrier incursion into markets that are very strong markets for Delta," said Michele Burns, Delta's departing CFO, on a conference call discussing its $384 million first-quarter loss. Indeed, the low-cost competition's effect on ticket prices has depressed yields, the total amount of money that a carrier takes in per passenger. The end result is that carriers fly more people, but make less money, using cheap seats to fill planes. Such is the case with Continental's first-quarter results announced Thursday. While the company filled 72.6% of seats, up from 69.6% a year ago, average yields fell 3%, leading to growth of just 1.2% in revenue per available seat mile. In the end, falling yields make it hard for airlines to profit even as demand rises -- a theme that may reach a fever peak in a first quarter marked by fare wars. On a conference call, Delta's Burns noted that bookings for the second quarter were "strong," already above year-ago levels, but quickly warned the company "didn't expect it to translate into any kind of pricing power." When more airlines release results next week, expect legacy carriers to talk out of both sides of their mouths -- bragging about better-than-expected bookings, while bemoaning the loss of pricing power. The biggest fare battles will continue to be fought on long-haul transcontinental routes, once the exclusive domain of the network carrier. So look for low-cost carriers to discuss where they see growth coming next and look for legacy carriers to outline their competitive response.
|Second Wave |
At least six airlines will be releasing earnings next week. The comparisons will be easy, but profits will be scarce.
|Company/Ticker||Earnings Release||EPS Exp.|
|America West Airlines (NYSE: AWA)||4/19||-0.43|
|American Airlines (NYSE: AMR)||4/21||-1.07|
|Northwest Airlines (NASDAQ: NWAC)||4/21||-2.51|
|SkyWest (NASDAQ: SKYW)||4/21||0.30|
|JetBlue Airlines (NASDAQ: JBLU)||4/22||0.12|
|Alaska Airlines (NYSE: ALK)||4/23||-1.35|
|Atlantic Coast Airlines (NASDAQ: ACAI)||4/28||0.23|
|Source: TSC Research, Thomson One Analytics|