An airline industry that's merging resources and making sure it doesn't take off with empty seats saw hundreds of millions of dollars in profits this past quarter.
United and Southwest were the most recent carriers to report that they'd made money during the second quarter. United said Thursday that it saw a profit of $469 million, or $1.21 per share, a 38% increase over that period last year. It was a significant comeback from the start of 2013 when the airline reported a $417 million loss in the first three months.
Meanwhile, Southwest, which flies more domestic passengers than any other airline, posted a second-quarter profit of $224 million, or 31 cents per share.
The industry's profit-making trend could continue at least through the rest of the year, as carriers swap out older jets for new, focus on moneymaking routes, and continue charging fliers extra fees for services and perks, says Jonathan Kletzel, national airlines leader for the professional services firm PwC.
"It's definitely healthier than it has been,'' Kletzel, said of the overall airline industry.
Airlines racked up massive losses during the recession when travel demand dried up. But now onetime competitors are consolidating, with US Airways and American on the verge of closing a deal that will make theirs the last mega merger among U.S. carriers.
Over the past two years, carriers have carefully controlled the number of seats they fly. And airlines now charge fees for everything from pillows to more legroom, creating a revenue stream that in 2012 brought U.S. airlines $3.5 billion in checked-baggage fees alone.
"Those are things that are new, that didn't exist five years ago," Kletzel said. "And those are going to help contribute to the health of the industry.''
United said Thursday that its revenue from extra fees grew 13% in the first half of the year, to over $20 per passenger, compared with that same period in 2012. "We believe there is considerable room for us to grow in this high-margin space,'' said Jim Compton, United's vice chairman and chief revenue officer, during the company's earnings call.
A dip in fuel prices, which can account for a third of an airline's costs, also boosted second-quarter profits across the industry, particularly for American, Southwest and Delta, which otherwise saw relatively little growth in revenue.
"The domestic economy was worse than what we had assumed,'' Southwest CEO Gary Kelly said in his earnings call with investors and media. "Fuel prices were nicely below plan, and that provided a nice offset.''
As airlines continue to replace older planes with larger, more fuel-efficient jets, and United and Continental, Southwest and AirTran, and US Airways and American put together the nuts and bolts of their respective mergers, it should also become easier for a more streamlined industry to make money, Kletzel says.
But labor and maintenance costs are on the rise, potentially sapping profits. And then there's the unpredictable cost of jet fuel.
"It's still the big wild card,'' Kletzel said. "It is the one thing that the airlines really, truly can't control very well. ... If fuel prices go up to $140 or $150 a barrel, that's going to be a problem.''
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