February was a busy month for air carriers, with traffic showing an increase. Airline traffic is measured in billions of revenue passenger miles (RPM), or revenue generated per mile per passenger.
Consolidated February traffic increased 3.4% at the largest U.S. airline United Continental Holdings Inc. (UAL). Both international and domestic traffic registered positive changes, with increases of 1.6% and 3.5%, respectively. Capacity (or available seat miles) also increased 5.4% year over year. Capacity increased faster than traffic, resulting in load factor (percentage of seats filled with passengers) decline of 140 basis points (bps) year over year to 74.6%.
The February traffic for the second largest U.S. airline Delta Air Lines (DAL) increased 13.0%, given a strong increase in Atlantic load factor and better yields in Pacific regions. Domestic and international traffic increased 2.5% and 1.7%, respectively. Capacity declined 1.7% year over year. Given the decline in capacity versus increase in traffic, the carrier’s load factor registered a growth of 240 bps year over year to 79.5%.
The low-cost carrier Southwest Airlines Co. (LUV) recorded continued growth in February traffic. The carrier recorded a 4.3% year-over-year increase in February traffic and capacity increase of 6.2%. As a result, load factor dropped 170 bps year over year to 75.2%
The discounted U.S. airline JetBlue Airways Corporation (JBLU) reported a 17.4% year-over-year traffic growth in February 2012, the highest compared to its rivals. On a year-over-year basis, capacity climbed 15.5% resulting in load factor gains of 130 bps to 81.4%.
February traffic for American Airlines, a wholly owned subsidiary of AMR Corporation (AAMRQ), grew 6.0% year over year driven by improvements in international and domestic traffic that grew 6.0 and 4.4%, respectively. Capacity also registered growth of 4.7%. Load factor improved 100 bps year over year to 75.8%.
Amidst fuel price worries, capacity pull back, soaring fares and the debt crisis impacting the U.S. and European economies, the airline industry registered growth on an increase in travel demand. Further, recent reports by the U.S. Federal Aviation Administration (FAA) also indicate a favorable momentum in the U.S. airline industry. According to the report, the U.S. airline industry will register profitability over the next two decades buoyed by increase in global air travel demand.
However, growth is expected to be limited until 2015 due to surging fuel costs and economic uncertainties in the U.S. and Europe. The report also suggests that major carriers in the U.S. will expand capacity at an annual rate of 3.1%, reaching 1.89 trillion by 2032.
We believe that the FAA’s forecast remains encouraging for the airline industry inducing positive market sentiments amid economic volatility. Additionally, factors like fare hikes, addition of new features to enhance services and introducing new products will also bode well for these carriers, leading to revenue growth going forward.
We are currently maintaining our long-term Neutral rating supported by the Zacks #3 Rank (Hold) on United Continental, Delta, Southwest Airlines and JetBlue.
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