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New York - US airlines are flying high again, reporting surging profits and returning cash to shareholders as they reap the benefits of an industry-wide merger wave wrought by the financial crisis.
The biggest US airline by revenue, American Airlines, on Thursday notched its highest quarterly profit in history following its acquisition of smaller rival US Airways. Earnings at American for the second quarter jumped 70% to $864m.
Also on Thursday, United Airlines reported that second-quarter profit surged 68% to $789m.
Both companies announced a $1bn share repurchase plans and American, after emerging from bankruptcy just six months ago, said it would pay its first quarterly dividend since 1980: 10 cents per share.
"The fact that we are able to implement this (capital deployment) programme while still funding our significant product improvements, fleet renewal programme and integration costs is further evidence of the success of our merger," said American Airlines chief executive Doug Parker.
The results mark a stunning reversal for a bankruptcy-prone sector that racked up billions of dollars in losses in 2008 and 2009 as the economy reeled from the financial crisis. All four of the biggest US airlines executed large mergers in the ensuing years.
Southwest Airlines, the fourth-biggest US airline, said on Thursday that second-quarter profit doubled to $485m, a new record. The company has returned $652m to shareholders so far in 2014 through dividends and stock repurchases.
On Wednesday, Delta Air Lines notched a 17% increase in profit to $801m. The third-biggest airline in the US, which has returned $550m to shareholders so far in 2014, said profit margins would rise in the third quarter.
"I think it's a watershed moment in the airline industry where you have the largest four carriers returning cash to shareholders," said United Continental chief financial officer John Rainey.
"This speaks volumes about how this industry has changed, how it's de-risked the business, and the sustainability of the earnings going forward."
Fewer empty seats
Airline consolidation has not always been popular with US politicians, but the better financial results indicate it has worked for the industry, analysts say.
In a recent note analysing the benefits of consolidation, research firm Trefis said the industry's operating profits rose to $5bn in 2012 compared with $5.6bn in losses in 2008.
Besides American-US Airways, the other big mergers were Delta-Northwest in 2008, United-Continental in 2010 and Southwest-AirTran in 2011.
"Consolidation made it easier for the remaining airlines to maintain capacity discipline," Trefis said. "This capacity discipline in turn enabled airlines to fly fuller planes as well as raise their airfares more freely."
In the second quarter, United Continental reported 0.3% fewer passengers, yet its planes had 0.6% higher utilisation.
United also gained from charges on customers to check bags or buy food on board. Revenues for this category rose 7.9% to more than $21 per passenger.
Airlines are modernizing their fleets to increase passenger load. American and United are both replacing smaller planes with more fuel-efficient aircraft that can fly more customers.
While concerns about international capacity are "dampening" sentiment, the improving US market will be a cash cow for American carriers, said a report by Barclays.
"Domestic still remains the place to be," said Barclays, which predicted profit margins on US flights in 2014 will surpass peak 1990s levels despite higher oil prices.
