US Airways Group and United Continental Holdings topped Wall Street earnings estimates Wednesday and said current revenue trends were solid, sending their shares higher and signaling that the airline industry recovery is on track.
"The demand is still increasing," said ITG Investment Research analyst Matthew Jacob. "There is room for improvement, especially if capacity can be kept in check."
United Continental, the world's biggest carrier, reported a profit compared with a year-earlier loss after accounting for merger costs, and US Airways touted its first profitable fourth quarter since 2006.
US Airways' shares were up nearly 10 percent in afternoon trading, while United Continental rose more than 8 percent. Other airlines also gained, with the Arca Airline index up 2.6 percent.
"The airlines are doing much better because of cost cutting, consolidation and the recovering economy," said Ray Neidl, a senior aerospace specialist with investment banking, securities and investment management firm Maxim Group. "The only major risk factor in my opinion is where fuel prices would go."
Hit hard by the economic downturn of 2008 and 2009, airlines are charging higher fares as demand returns. Baggage fees have also given bottom lines a lift as business travel picks up.
United Continental said it had raised fares recently to cope with rising oil prices, while adding seat capacity to meet international demand. The carrier said it expected January passenger revenue per available seat mile, an important airline measure, to rise 12 percent for its mainline United operations and 11 percent including regional aircraft.
"The big concerns over the past couple of weeks in the industry have been capacity and the outlook for revenue heading into 2011," Jacob said. "Some of the commentary, especially from Continental, helped allay some of those concerns of will revenue continue to grow."
US Airways said fuel prices would influence its capacity plans and added that it was keeping costs down. For example, it said its mainline costs, excluding fuel, profit sharing and special items, were down 2 percent in the fourth quarter from a year earlier.
Quarterly revenue rose 15 percent at United Continental and about 11 percent for US Airways.
"As we roll over to a new calendar year, we feel good about the revenue environment," US Airways President Scott Kirby said on a conference call. "Business demand is strong."
Last week, Delta Air Lines Inc reported a quarterly profit against a year-earlier loss, and Southwest Airlines Co turned in higher earnings. American Airlines parent AMR Corp posted a smaller loss.
"The airlines are in a pretty strong position for 2011, and the fourth quarter, despite the storms, is demonstrating how strongly they are coming back," Neidl said.
US Airways shares were up 9.6 percent at $11.10, while United Continental rose 8.4 percent to $26.12. Delta was up 2.7 percent at $11.94, and AMR gained 2.8 percent to $7.41.
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