Major Turnaround For Domestic Airline Carriers

Airlines Restructuring for the better

The commercial airline industry has been considered a beleaguered beast over the past few year, with major players going into bankruptcy or undergoing large reorganizations. But in the past quarter, American Airlines, United Airlines and Delta Airlines all posted record profits, the New York Times reports.

For the first time in over a decade, airlines are bringing in enough cash to reward shareholders with new dividends, pay down debt, and buy new aircraft. W. Douglas Parker, CEO of American Airlines, said that their second quarter earnings were the best in the company’s history. Parker, in a memo to employees, expressed disbelief that only 8 months prior, American was in bankruptcy. Now, after a merger with US Airways in December, the company will begin paying out its first quarterly dividend since 1980. Delta also posted a profit of $801 million in the second quarter and United Airlines, still fresh off its troubled merger with Continental, bringing in $919 million.

These carriers have been very careful these past few years. They have limited available flights around major hubs, increased fees, and partnerships with international carriers in order to increase their reach around the world. The fact that two of these airlines are still undergoing mergers makes this second quarter all the more remarkable.

Analysts do urge caution, in particular, about the stock-buying programs for United and American, which total about $1 billion apiece. Because the mergers are incomplete for those airlines, some analysts believe there is a reason to proceed with caution.

“Unanticipated integration problems could affect earnings and cash flows, which would be made worse by American’s cash commitments to shareholders,” according to a report by Fitch Ratings. “Like American, United also has sizable upcoming capital commitments as it takes delivery of new aircraft, and the share repurchases could pressure cash balances if not managed prudently.”

Still, profitability for the first time in a generation is certainly reason for optimism, which some believing that this is a beginning of a new era for domestic legacy carriers.

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