SOURCE: Paragon Financial Limited

Paragon Financial Limited

September 03, 2012 08:20 ET

Rising Fuel Costs Reduces Airlines Profit Margins in the First Half of 2012 -- September Traffic Averages 16% Drop

The Paragon Report Provides Stock Research on Southwest Airlines and US Airways Group

NEW YORK, NY--(Marketwire - Sep 3, 2012) - After a strong start to the year, airline stocks have begun to falter. Higher fuel prices resulted in reduced profit margins for airlines during the first half of 2012, as fuel accounts for approximately 34 percent of the industry's costs. The Guggenheim Airline ETF (FAA) has fallen roughly 12.5 percent since mid-July. The Paragon Report examines investing opportunities in the Airlines Industry and provides equity research on Southwest Airlines Co. (NYSE: LUV) and US Airways Group, Inc. (NYSE: LCC).

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Airlines for America, a U.S. airlines trade organization, in their midyear economic outlook reported U.S. airlines first half expenses increased by 9.4 percent. Profit margins have declined to -1.5 percent in the first half of 2012 from -0.4 percent in the same period a year ago. Rising fuel prices has been one of the major reasons for the decline in profit margins as fuel cost increased 13.1 percent.

"There is a lot of pressure on carriers of all shapes and sizes, not just in the US but across the globe, to continue to find ways to cut costs, expand revenues and improve productivity," A4A chief economist John P. Heimlich said.

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Data from Airlines for America has shown that over the past five years traffic for the seven largest U.S. airlines has seen an average drop of 16 percent in September from August. Unit revenue, which is the money received from passengers for each mile flown, has fallen 7 percent on average.

"It's always true that September is worse than August," says John Heimlich, chief economist for the trade group. "If what analysts are detecting and airlines are saying is accurate, we might expect to see less robust growth in September than in previous years."

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