Airlines Soar in Typically Slow First Quarter
These are strange new times for airlines in the United States. After years of struggling to break-even, carriers are not only in the black, but could post profitable first quarters.
Why is that a big deal? The first quarter is typically the slowest in the industry with few major travel holidays and weather that can often sock the bottom line with costly cancellations.
Fewer Seats and More Fees
The airline business is finally a profitable one because the carriers have brought down their capacity. They've done it by stripping out flights and replacing larger planes on many routes with smaller regional jets.
As a result, planes are more crowded and the airlines have been able to maintain their pricing power. "We are managing things differently. Oil is down and people are not worrying around about market share," said Bob McAdoo airlines analyst with Imperial Capital.
In February passenger revenue per available seat mile (PRASM) was up for America's five largest airlines.
Airlines are also benefitting by growing revenue from ancillary fees. It is estimated that worldwide, airlines boosted their ancillary fee revenue by 4.9 percent in 2012 while taking in 36.1 billion dollars.
What started with charging passengers for checking luggage has morphed into the airlines charging customers for where they sit and in some cases when they can board the plane.
Ancillary fees are so important some believe they will determine whether or not particular carriers turn a profit.
Bankruptcy and Consolidation helping the Balance Sheet
Much as the U.S. auto industry benefited from wiping out legacy costs and unprofitable contracts while numerous companies were in bankruptcy, many of the major airlines have had their balance sheets wiped clean in chapter 11 restructurings.
(Read More: AMR, US Airways Merger Good for Customers: CEOs)
It has left the airlines in the rare position of being leaner and better able to manage their costs. At the same time, the merger wave that started in 2008 with Delta merging with Northwest has changed the competitive landscape.
Once the American Airlines merger with US Airways is approved, about 70 percent of the flights in the U.S. will be operated by the four biggest airlines. That means fewer flights and fewer seats on many routes.
And there is one more factor helping airlines post some of their best returns in years—jet fuel prices have been held in check.
This is the wild card when it comes to airlines turning a profit. Jet fuel is the single largest operating expense for airlines and when it goes higher it hits the bottom line. The fact that jet fuel is currently at the same price where it was a year ago is a big factor behind some carriers having the chance to turn a profit in the first quarter.
—By CNBC's Phil LeBeau; Follow him on Twitter @LeBeauCarNews