Airlines' Profit Reports Bolster Industry Recovery

Continental and Southwest Airlines posted higher than expected first quarter net profits today. The airline industry is recovering from a years-long slump as carriers cut back the number of seats for sale and charge higher fares. Marketplace's John Dimsdale talks with Alex Chadwick about the recent turnaround in the airline industry.

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ALEX CHADWICK, host:

From NPR News, it's DAY TO DAY.

New financial reports show the airline industry is having its best year since 2001, when the 9/11 attacks essentially crippled the business. Today Continental and Southwest both posted profits for January through March. They joined American Airlines, which just announced its first profitable quarter in seven years. Joining us is John Dimsdale from MARKETPLACE. John, quite a turnaround, what happened?

JOHN DIMSDALE: Well, if you've flown anywhere recently, you know you're more likely to be crammed into that middle seat. Airlines have been cutting flights, cutting costs, cutting salaries, and they've managed to raise prices. So things are looking up. Delta is coming out of its bankruptcy. U.S. Air and America West are making a go of their merger despite a lot of predictions that they wouldn't be able to do it.

All of this is done in the face of some pretty strong headwinds. Winter storms caused delays and cancellations. There was a lot of bad press about people stuck for hours in airport gridlocks. And, of course, there have been the extra energy costs.

Industry analyst Jonathan Spira at Basex Incorporated says the terrorism concerns, the low fare competition, and a challenge of expensive fuel had been good discipline for the industry.

Mr. JONATHAN SPIRA (CEO and Chief Analyst, Basex Incorporated): The airlines have learned how to re-examine every cost of doing business, every peanut that goes on the plane, and they've learned to work better with their workforces.

CHADWICK: Are these long-term lessons that they've learned, John? Are these profits sustainable, you think?

DIMSDALE: Well, things are still a little tenuous. You heard Spira mention airline employees. Over the last few years, the unions have given management a lot of wage and benefit concessions to keep the companies in the air, and now they want a piece of these new profits.

American Airlines just announced $160 million worth of stock bonuses for its management executives. There have been some protests from pilots and flight attendants. And there's still plenty of uncertainty throughout the industry about what's going to happen to the cost of fuel, of course.

CHADWICK: You mentioned Southwest, or we did earlier. They have profits for this last quarter reported today. But they usually report profits, don't they?

DIMSDALE: They've been a well-managed company. They keep their costs under control. They've made a virtue out of their no-frills reputation. Southwest wisely locked in some fuel contracts years ago when prices were low, and the company's been benefiting from that really smart move. But those long-term contracts are now expiring and the company is facing some new competition from other low-fare airlines.

There is some talk that Southwest might be a ripe take-over target, although the CEO vehemently denies that it's up for sale. But for now the skies are looking a lot brighter for the airline industry.

CHADWICK: Thank you, John. John Dimsdale of Public Radio's daily business show MARKETPLACE, produced by American Public Media.

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