And so we reach the high water mark for investors as airlines in the US report surging profits in the third quarter

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By TESTCustomwebLP TESTCustomwebLP October 21, 2010 13:30

And so we reach the high water mark for investors as airlines in the US report surging profits in the third quarter

US Airline stocks surged yesterday as higher fuel prices failed to drive operators into the red this quarter. AMR, US Airways and Delta all report improving economic conditions and strong load factors that drove revenue increases, indicating a widespread recovery for the US domestic carriers.

AMR Corporation, the parent company of American Airlines, reported net profit of $143 million for the third quarter, with $5.8 billion in revenue, up 14%. Last year the company posted a net loss of $359 million, with $5.1 billion in revenue.

AMR also announced plans to enhance its strategic position in Los Angeles with a 28% increase in daily departures, with plans to launch nine new domestic markets by spring 2011. American also recalled 545 furloughed flight attendants and 250 pilots in early October. AMR shares are up 7.36% at $7.00 per share.

US Airways posted earnings of $240 million compared with a loss last year of $80 million. Revenue rose 17% in the third quarter to $3.18 billion. US Airways shares are up 6.5% at $10.75 per share.

Meanwhile Delta reported a profit of $363 million up from a loss of $161 million for the same quarter last year. The news sent Delta stock surging up 11% at $13.03 per share.

These reports show US airlines achieving the kind of profits that have eluded them for what seems to have been nigh on a decade. With strikes, terrorist attacks, soaring fuel prices and an all but shattered economy, these airlines have represented an industry more known in the financial markets for losses than anything else but for once it is they who are driving Wall Street higher. The reason? The capacity cuts put into place over the past few years have made it possible to push through higher ticket prices.

The airline index is up 95% over the past 12 months. It’s also back at the same index level that propped up the sector from early 2003 through late 2007, when the US economy was still humming along and fuel prices were fairly tame. Yet, despite those obvious pluses, the airline index was stuck in a relatively tight range during those years and never came close to recapturing 183 points, its high point prior to September 11. Investors might want to keep this in mind when thinking about going bullish on airlines. While the sector’s made huge strides, it’s hard to see how it can sustain such gains given the weak economy; therefore this may turn out to be the high water mark for some time.

Southwest Airlines will report third-quarter financial results before the start of trading today. Investors will want to hear what CEO Gary Kelly says about growth and the carrier’s agreement to buy rival AirTran Airways for $1.4 billion. Expect the figures to be good.

However as is the case in all things at the moment, where there is good news there is sure to be bad. The latest traffic data from Japan’s two dominant carriers (ANA and JAL) and the Japanese Ministry for Land, Infrastructure, Tourism and Transport shows that domestic and international passenger numbers were down in both July and August by some 16%. The Japanese carriers are reflecting the dire state of their domestic economy which is in real danger of default at this time.

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By TESTCustomwebLP TESTCustomwebLP October 21, 2010 13:30
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