Southwest, United receive a lift from lower fuel prices
DALLAS — Lower fuel prices are boosting airline profits and leaving enough left over for passengers to get slightly lower fares.
United Continental Holdings and Southwest Airlines reported Thursday that fourth-quarter earnings soared as fuel spending dropped by about one-third.
Both airlines announced plans to buy more planes and reward shareholders by purchasing more of their own stock, which makes remaining shares more valuable.
Airline stocks have slumped in early 2016 as investors fear that cheap fuel will encourage airlines to add too many flights, creating a glut of seats.
United and Southwest executives said demand remains strong, but they conceded that a drop in fares that began in 2015 is extending into the new year.
The average one-way fare on Southwest fell more than 5 percent — to just under $150 — compared with a year earlier. United didn’t disclose its average fare, but both airlines reported that on a per mile basis, passengers paid about 7 percent less than in late 2014.
Discounters Spirit and Frontier are putting pressure on the big airlines by touting low fares that include a seat and not much more. United said that later this year it will begin selling “entry-level” fares. Delta sells “basic economy” tickets that can’t be changed and don’t let passengers pick a seat. American has said it too will introduce a no-frills fare this year.
Even with the slide in fares, the big carriers are ordering new planes. United said it would buy 40 Boeing 737-700 jets to replace smaller planes operated for it by regional airlines. Southwest will buy 33 new 737-800s, converting orders for smaller 737s and phasing out older models of the same plane by mid-2018.