The Wall Street Journal-20080205-The Middle Seat- The Airline Champ of 2007- In Dismal Year- Southwest Scored- American Struggled

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The Middle Seat: The Airline Champ of 2007; In Dismal Year, Southwest Scored; American Struggled

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The New York Giants pulled an upset, but in the Super Bowl of airline competition, there were no last-minute heroics or thrilling victories last year, just lots of competitors struggling mightily and lots of customers paying higher prices for generally mediocre service.

Air travel took a major slide backward last year as air-traffic congestion and nasty storms collided with staffing cutbacks, equipment deficiencies and grumpy workers. Airlines battled extremely strong head winds in the form of high fuel prices -- the 10 largest U.S. carriers paid $1.5 billion more for fuel than they did in 2006. Still, they squeaked out combined operating income of $6.7 billion last year, up from $4.3 billion in 2006.

Which airline had the best year last year? You'd have to say Southwest Airlines Co., but with an asterisk. Southwest was best among the 10 biggest carriers in on-time arrivals, according to FlightStats.com, and through the first 11 months of the year, it had the fewest customer complaints in Department of Transportation statistics. It also had the biggest profits among those 10 airlines. But its baggage handling slipped markedly last year to sixth place among the Big 10 as tighter security rules increased checked baggage volume. And in terms of profits, Southwest's net income came entirely from smartly playing the fuel-hedging futures markets, not flying passengers. The airline earned $645 million last year -- after $727 million in cash gains on fuel contracts bought in commodities markets back when oil prices were much lower.

US Airways Group Inc. had plenty of struggles, but almost a mirror image of Southwest's record. US Airways had solid earnings at $427 million, but terrible operations. US Airways was No. 8 among the 10 biggest carriers in on-time arrivals for 2007, according to FlightStats, a flight-tracking service and unit of Conducive Technology Corp. Through the first 11 months of last year, US Airways was worst among its peers in baggage handling and consumer complaints, according to DOT. (Full-year DOT results are expected to be released today.)

The airline says its operation performed a lot better in the fourth quarter and over the holidays, suggesting 2008 will be a better year.

Continental Airlines Inc., Delta Air Lines Inc. and Northwest Airlines Corp. were all in the middle of the pack. Delta and Northwest rebounded from their bankruptcy reorganizations with relatively strong financial results last year, but customer service still lagged. Northwest was No. 6 in on-time arrivals and in customer complaints; Delta was third in on-time arrivals, but No. 9 in baggage handling and No. 8 in complaints. Continental did fairly well financially and operationally, but ranked ninth-worst in terms of frequency of bumping customers from flights, according to DOT's count through September. Delta was the worst at bumping customers.

And the bigger airlines were even less reliable. Worst among the big airlines in on-time arrivals last year was AMR Corp.'s American Airlines, according to FlightStats. American's baggage handling ranked No. 8 through November, and its rate of customer complaints was No. 7. AMR's earnings were among the weakest in the industry as well, its profit margin for the year was slightly better than UAL Corp.'s United Airlines and JetBlue Airways Inc., but no one else.

United struggled with its operation, too. United's on-time percentage ranked seventh, according to FlightStats, after a dismal December that included numerous cancellations. United's rate of customer complaints was second-worst, ahead of only US Airways, according to DOT.

American and United both trimmed flights from their schedules last year because oil prices ran costs so high. Both carriers flew with most of their seats filled -- American's load factor -- the percentage of seats filled -- was 81.5% last year and United's was 82.7%. Passengers paid higher ticket prices, too, with American's yield, or average price paid to fly one mile, up 2.8% and United's up 6.6%. Earnings were better in 2007 than the year before for both companies, but the profits are still small by most any other industry's standards. American's profit margin was an anemic 2.2% and United's only 2.0%.

Higher oil prices have extracted a heavy toll on U.S. airlines and on their customers. The good news is that they have been able to fly through so much adversity. The bad news is it's been a bumpy ride -- and there is likely more to come.