(Reuters) - American Airlines Group (AAL.O), United Airlines (UAL.N) and other carriers reported strong third-quarter profits on Thursday, helped by falling fuel costs, and mostly shrugged off concerns that Ebola could affect their outlook.
Despite concerns about increased competition in some markets, several major U.S. carriers also signaled they would boost capacity, betting on a steady increase in passenger traffic through next year.
American, which exited bankruptcy last year via a merger with U.S. Airways, saw a nearly 4 percent gain in its shares as it forecast healthy unit revenues for the current quarter. United, while projecting a more moderate unit revenue increase compared to last year, reported that third-quarter profit more than doubled.
"The general theme is that the revenue environment seems to be healthy still, demand remains strong and airlines still have pricing power," said S&P Capital IQ analyst Jim Corridore, noting that airlines industry-wide raised one-way fares by $2 last week.
American Airlines, already the world's largest airline by passenger traffic, promised in an earnings call to outstrip its competitors by the end of 2015 as the carrier with "industry leading" profit margins before tax.
While the Fort Worth-based carrier acknowledged a temporary drop in bookings the day after congressional hearings on the Ebola virus, it expects passenger revenue per available seat mile to grow by 2 to 4 percent in the current quarter, excluding the impact of cash being trapped in Venezuela, which has hurt U.S. airlines that operated there.
Other airlines also downplayed Ebola threat's impact on bookings.
American said it earned $1.66 per diluted share without special items - beating Wall Street's expectations - and net income of $942 million in the third quarter, a nearly 87 percent improvement on the combined incomes of American and U.S. Airways before they merged in December 2013.
American expects its capacity to grow between 2 and 3 percent in 2015, while United anticipated growth of 1.5 to 2.5 percent. Those figures are not directly comparable because the airlines forecast capacity in different ways. The forecasts parallel Delta's, which last week promised a roughly 2 percent growth in capacity next year.
A large portion of the increase will come from the airlines fitting additional rows in their planes flying domestic routes without sacrificing legroom.
"At this point we don't think they're growing too fast," Corridore said.
Investors were somewhat less enthused about Southwest Airlines (LUV.N). Its stock fell 2.8 percent after the carrier declined to detail its forecast. Fellow low-cost carrier JetBlue also failed to wow investors after reporting earnings that missed analysts' forecasts.
While Southwest Airlines topped analyst estimates, the carrier disappointed with vague guidance on the current quarter, for which it described bookings as "good."
Southwest's 2-percent unit revenue growth in October was a "slow... start," JPMorgan analyst Jamie Baker said in a research note. Baker said the potential for Southwest to beat fourth-quarter targets was "largely dashed given what many consider discouraging revenue commentary."
United, the No. 3 U.S. airline, grew its third-quarter profit nearly 144 percent to $924 million compared to last year, beating earnings per share estimates as well. The airline also halved the gap between its operating margin and Delta's and said it is on track to cut costs by $500 million in 2014.
"We would all like to close that margin gap as soon as possible," United's Chief Financial Officer John Ralney said on the company's earnings call on Thursday. "We don't like our relative place in the industry - that's a fact - and we think that we've got a lot of opportunity to improve."
(Reporting By Jeffrey Dastin; Editing by Alwyn Scott, Tom Brown and Cynthia Osterman)