American Airlines reported higher profits for its third quarter Thursday, but executives said new seasonal flights from Charlotte Douglas International Airport to Europe haven’t performed well and hinted they might not be continued next year.
Several other major airlines reported their results Thursday, and the industry as a whole saw rising profits. Airlines were boosted by cheaper fuel, typically their single biggest expense. But executives said customers shouldn’t expect to see lower ticket prices anytime soon.
A study this week from travel website Expedia.com found the average airfare for Thanksgiving travel is $467, up 17 percent this year. Such strong prices, buoyed by fees for everything from checked bags to changing an itinerary, are driving higher profitability.
“In a strong demand environment, we don’t have plans to just go off and proactively cut fares,” said American Airlines President Scott Kirby, during a conference call to discuss the carrier’s results. But Kirby said that in real terms, airfares adjusted for inflation “remain a great bargain.”
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American and US Airways – Charlotte’s primary carrier – merged last December, but the airline still operates most flights from Charlotte under the US Airways brand, which will be phased out once the carriers fully combine.
American reported that profits rose 87 percent from the same quarter last year, to $942 million. Revenue at the carrier increased 4.4 percent, to $11.1 billion.
Charlotte is American’s second-busiest hub, with more than 700 flights a day, behind only Dallas/Fort Worth. The airline operates more than 90 percent of Charlotte’s daily flights.
Since its merger, American has added domestic flights from Charlotte to Midwest destinations such as Grand Rapids, Mich., to bolster its network. American also added a second daily flight to London Heathrow in September. But Charlotte Douglas remains primarily a domestic hub, and American has cut its daily flights to São Paulo and Rio de Janeiro, Brazil.
US Airways announced last year that it would add seasonal flights to four new European cities from Charlotte: Barcelona, Spain; Lisbon, Portugal; Brussels; and Manchester, England. But the airline trimmed the new flights, operated as US Airways flights, before they started, reducing their frequency and duration.
On Thursday, Kirby said some of the new flights still haven’t done well.
“While we haven’t finalized our plans for next year, some of the new Charlotte routes did underperform our expectations,” said Kirby. He said the airline doesn’t have any specifics to announce yet, but he emphasized that American decides where to fly based on where it can make money.
“We look at it purely based on profitability,” Kirby said.
Bob Mann, a New York-based aviation consultant, said that the new Charlotte routes might have made more sense when US Airways was still a stand-alone carrier. That’s when the plans were announced.
“The possibility is the network just kind of routed the traffic to other hubs,” said Mann. American now has five hubs on the East Coast – New York, Philadelphia, Washington, D.C., Miami and Charlotte – as opposed to the two US Airways had. The company also has other hubs with international service, such as Dallas/Fort Worth and Chicago, which US Airways didn’t have.
“They’re trying to use their assets to the highest and best use,” said Mann. “I think it will mean that putting those types of services back into Charlotte may be slightly more difficult.”
If American cuts the four new flights, that would leave Paris, Rome, Dublin and Madrid as seasonal direct flights to Europe. Charlotte Douglas has year-round nonstop flights to London, Frankfurt and Munich (operated by Lufthansa).
American has recently added service to Miami, including the recent addition of a nonstop flight to Frankfurt. But American CEO Doug Parker, who held the same position at US Airways, said that shouldn’t be seen as a signal that Charlotte’s service – such as its Frankfurt flights – is in danger.
“Adding Miami-Frankfurt doesn’t preclude us from doing something out of Charlotte,” he said.
Industrywide, carriers have added trans-Atlantic capacity while demand from Europe hasn’t kept pace. The effects could be seen in American’s results: The airline added 4.6 percent to its capacity, while travelers fell 3.6 percent during the quarter. As a consequence, American’s trans-Atlantic flights averaged 80.4 percent full, down from 87.3 percent full last year.
To compensate, American plans to reduce its trans-Atlantic capacity by 2 percent in the coming quarter, executives said.
A strengthening industry
Airlines have reported strong earnings in recent quarters, as the industry continues to bounce back from the recession and benefit from the latest round of consolidation. They’ve been bolstered by higher bookings, more revenue from fees and declining fuel costs.
Last week, Delta Air Lines reported its revenue rose 7 percent for the quarter, to $11.2 billion. Profits fell 74 percent, however, to $357 million, dragged down by one-time charges such as its accelerated timetable for retiring its fleet of Boeing 747s.
United Continental, which has struggled to make its 2010 merger pay off, reported a profit Thursday of $924 million, more than double its $379 million profit during the same quarter last year. Southwest Airlines said its profits rose 27 percent, to $329 million.
American, now the world’s largest airline, is still integrating its operations with US Airways. The carriers don’t expect to combine their operating certificates and complex reservation systems until next year, meaning they will largely continue to operate as separate airlines. But integration work is proceeding. Last week, American and US Airways combined their cargo operations, the first division at the company to completely combine.
The company also started construction of its new combined operations center in Fort Worth, Texas, and reached a tentative agreement for a combined contract with its 24,000 flight attendants.
In its results Thursday, American said it paid an average of $2.98 a gallon for fuel during the quarter, down from $3.03 last year. The airline’s revenue passenger miles, an industry measure of travelers, inched up 0.3 percent. But American’s available capacity increase of 2 percent outpaced that increase. As a result, American’s planes were less full than last year, with 83.4 percent of seats filled, down from 84.7 percent.