Which Airlines Have Outperformed in 2013?

oils sandsAirlines enjoyed a boost on Wednesday afternoon following the weekly Petroleum Status Report released by the Energy Information Agency. The report showed that oil inventories rose by 2.6 million barrels last week, following an increase of 5.9 million barrels the week before. Refineries have slowed production because inventories are well above their upper limit for their average at this time of year at 371.7 million barrels.

Jet fuel prices, which are very closely linked to oil prices, simmered down at the end of 2012 and dropped below $3 per gallon in November. Prices remained low through most of December, but ticked up above $3 at the end of the month, and as of the first week of February jet fuel was $3.18 per gallon. While high inventory levels strike an optimistic note for the price of fuel, it’s clear that they have been on the rise recently, led by an increase in oil prices.

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Fuel accounts for as much as 40 percent of costs for airlines, and following deep restructuring at most major operators, one of the top concerns moving into 2013 is how well carriers will be able to control this cost. Let’s take a look at how some airlines are doing so far this year, and what the winner is doing about fuel costs…

JetBlue Airways (NASDAQ:JBLU)

If anything, JetBlue has underperformed in 2013. The stock is down over 2.5 percent this year to date, falling sharply after reporting fourth-quarter and full-year 2012 results, despite reporting positive operating revenues for the quarter. The airline’s issue is that its record revenues were offset by higher costs, both from Superstorm Sandy and a heavy round of maintenance, that pushed profits down to just $1 million in the quarter from $23 million in the year-ago period.

JetBlue paid an average of $3.20 per gallon for fuel in the fourth quarter, a 1.6 percent year-over-year increase, and expects to pay an average of $3.23 per gallon in the first quarter of 2013. Shares were up 1.5 percent on Wednesday afternoon.

United Continental Holdings (NYSE:UAL)

United Continental also reported fourth-quarter and full-year 2012 results that missed the mark. Fourth-quarter losses widened to $620 million, or $1.87 per share, compared to a loss of $138 million, or $0.42 per share, in the year-ago period. Total operating revenue dropped 2.5 percent.

For the quarter, the company paid a mainline average fuel cost of $3.29 per gallon, a 3.5 percent increase year over year. Shares were up over 4 percent on Wednesday afternoon.

Delta Air Lines (NYSE:DAL)

So far in 2013, Delta has left its competition in the dust. The stock has climbed nearly 14 percent since the start of the year, with additional gains of 2.9 percent on Wednesday afternoon following the oil inventory report. Delta has made a number of headlines because of its $250 million purchase of the Trainer refinery outside of Philadelphia.

The purchase is aimed at reducing the company’s fuel costs, which totaled about $12 billion last year. Realization of gains from the refinery has helped push the company’s stock higher while its competitors stagnate. Delta’s bold move, while seen as risky by some, is already being praised by many observers. A few months after Delta made the purchase, executives at United had their eye on a purchase of their own, reviewing a refinery in Texas.

Delta paid $3.24 per gallon for fuel in the fourth quarter and the refinery produced a $63 million net loss. This was largely due to production delays attributable to Superstorm Sandy, and the facility is expected to turn a profit in the first quarter.

The refinery play is particularly interesting because it goes above and beyond the typical strategies employed by airlines to cut fuel costs. Shorter flights, more efficient routes, lighter aircraft, and traditional hedging strategies are all old hat by now and, while valuable, are not producing the kind of savings that is necessary for the fundamental cost reform that airlines need.

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