Airlines Are Reaping the Benefits of Strong Travel Demand
American Airlines Group Inc. AAL -3.71% and Southwest Airlines Co. LUV -3.82% generated more revenue than expected in the fourth quarter thanks to strong travel demand, the latest carriers to extend stretches of profitability even as costs rise.
Alaska Air Group Inc. ALK -6.99% also said Thursday that net income more than tripled in the quarter thanks to benefits from the new U.S. tax legislation, and JetBlue Airways Corp. JBLU -3.63% said revenue rose 7%. Delta Air Lines Inc. and United Continental Holdings Inc. reported better-than-anticipated quarterly results earlier this month.
Airline shares were little changed in premarket trading Thursday. Airline stocks fell Wednesday after United’s expansion plans sparked investor fears of a fare war between airlines.
U.S. airlines also said they would benefit from changes to U.S. tax law including the new 21% corporate rate, down from the previous 35% rate. Southwest, the nation’s fourth-largest carrier by traffic, benefited from a $1.4 billion noncash credit that reduced its deferred tax liability.
“Based on our current outlook, the reduction in the statutory federal rate will result in hundreds of millions in tax savings, which will significantly boost our earnings in 2018,” said Southwest Chief Executive Gary Kelly. Like many of its peers, Southwest used some of the savings to give employees a one-time cash bonus of $1,000.
JetBlue, the No. 6 carrier, also enjoyed a gain from the revaluation of its deferred tax liabilities. Alaska’s big income boost was due in part to a $274 million special tax benefit. Excluding special items, Alaska’s results were in line with expectations.
American, the largest U.S. carrier, isn’t a cash taxpayer because it has $10.2 billion of federal net-loss carryforwards, which allow it to reduce its tax liabilities on future profits with past losses. The airline said it would book a 24% tax rate this year, mostly noncash.
Delta EQDELTACORP 2.03% and United also employ net-loss carryforwards to reduce their tax liabilities.
American, based in Fort Worth, Texas, said its fourth-quarter revenue swelled by 8.3% to $10.6 billion, helped by a 5.6% increase in unit revenue, a measure of income for each seat flown a mile. In the current quarter American expects that metric to rise between 2% and 4%.
Southwest’s unit revenue rose 1.9% in the fourth quarter and is expected to rise 1% to 2% in the current period. The discount giant said total fourth-quarter revenue climbed by 3.9% to $5.27 billion.
Southwest also said it expects to receive Federal Aviation Administration authorization to begin flights to Hawaii later this year. Southwest also plans to launch flights from a commercial airport terminal being built at Paine Field, in Everett, Wash., north of Seattle
—Cara Lombardo contributed to this article.
Write to Susan Carey at susan.carey@wsj.com