Airlines Post Gains on Fuel Hedges, Revenues Up Too (DAL, LCC, LUV, AAMRQ, UAL, JBLU, FAA)

Two of the US’s largest airlines reported earnings today, Delta Air Lines Inc. (NYSE: DAL) and US Airways Group Inc. (NYSE: LCC), and both showed a profit thanks to mark-to-market gains on fuel hedges. At Delta, adjusted EPS actually showed a loss of -$0.05/share, right on the consensus estimate and far better than the EPS loss of -$0.38 that the company posted in the same period a year ago. Revenue of $8.41 billion topped the consensus estimate of $8.36 billion.

At US Airways, profits rose to $48 million, which included a one-time gain of $73 million on a transaction with Delta related to takeoff and landing rights at LaGuardia and Reagan National. Stripping out the one-time items, US Airways posted an EPS loss of -$0.13, far better than the EPS loss of -$0.68 in the same period a year ago and nearly two times better than the consensus analyst estimate for an EPS loss of -$0.25. Revenue of $3.27 billion was also better than the consensus estimate of $3.24 billion.

The two airlines follow Southwest Airlines Co. (NYSE: LUV) and AMR Corp.’s (OTC: AAMRQ.PK) American Airlines, both of which reported earnings last week. Southwest also posted a profit on hedging gains, and American’s loss, stripping out one-time charges, was 40% smaller than it was in the same period a year ago.

United Continental Holdings Inc. (NYSE: UAL) is scheduled to report earnings tomorrow, as is JetBlue Airways Corp. (NASDAQ: JBLU). The consensus estimates call for United to post an EPS loss of -$1.03 on $8.58 billion in revenue and for JetBlue to post EPS of $0.08 on revenue of $1.19 billion.

The good news for airlines is that traffic is up, ticket prices have been raised, and some capacity has been wrung out. The wild card, of course, is fuel costs. Data from the International Air Transport Association (IATA) indicates jet fuel cost $3.245/gallon, down -2.4% from March, and down -1.9% from the same period last year. The IATA estimates the average cost for a barrel of jet fuel in 2012 will be $135, which will raise the industry’s total fuel bill by $41 billion over the year.

Delta’s shares are down about -0.3% in the early afternoon, at $10.45 in a 52-week range of $6.41-$11.60. US Airways’ shares are up 2.9% at $9.58, in a 52-week range of $3.96-$10.35.

The lightly traded Guggenheim Airline ETF (AMEX: FAA) is up 0.14% at $29.30 in a 52-week range of $23.82-$39.18.

Paul Ausick

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