August has been a busy month for airliners with traffic showing signs of increase. The economic downturn in 2009 and the oil price hike in 2008 had affected the airline industry during the past two years. Now, with the economic recovery, demand for air travel is increasing from last year’s depressed levels.
Airline traffic is measured in billions of revenue passenger miles (RPM), which is the revenue generated for every mile a passenger flies. Unit revenue and capacity rose for most of the airlines in August.
The low-cost carrier Southwest Airlines Co. (LUV) recorded a 6.4% rise in August traffic, the largest growth relative to its peers, on a capacity (or, available seat miles) increase of 3.7% year over year. The month’s RPM increased to 7.1 billion compared with 6.7 billion in August 2009.
Load factor (percentage of seats filled with passengers) was 82.3%, up 210 basis points (bps) year over year. The company expects a 15%-16% increase in unit revenue for August, measured by passenger revenue per available seat mile (PRASM), a key metric for airlines.
Our current Zacks Consensus Estimate for Southwest Airlines is 24 cents per share for the third quarter compared with earnings of 3 cents per share in the year-ago quarter. If the company meets the Zacks Consensus Estimate, it would lead to a whopping 715.4% year-over-year growth. Similarly, for fiscal 2010, the current Zacks Consensus Estimate of 72 cents indicates a significant 281.4% year-over-year growth.
We believe Southwest Airlines is well positioned for growth attributable to its cost leadership, strong balance sheet, low cost, flexibility, network optimization, increasing revenue initiatives and hedging. However, discounts on ticket prices, concerns on labor costs, fuel price volatility and technology investment by the company keep us on the sidelines. We are currently maintaining our long-term Neutral rating on Southwest Airlines supported by the Zacks #3 (Hold) Rank.
Delta Air Lines (DAL), the world’s largest airline, reported a traffic increase of 1.1% year over year in August based on a 1.2% capacity increase and stable load factor. Domestic traffic declined 0.9% year over year with load factor falling 100 bps. This was partially offset by a 0.3% increase in capacity. However, international traffic increased 4.2% year over year driven by a 2.7% capacity increase and load factor growth of 130 bps to 87.4%.
Our current Zacks Consensus Estimate is 89 cents per share for the third quarter compared with 6 cents per share in the year-ago quarter. For full-year 2010, the current Zacks Consensus Estimate is $2.12, indicating a significant growth of 40.85% year over year.
We remain cautious on Delta Air Lines due to its debt-loaded balance sheet, unionized labor and rising fuel prices. However, we believe the successful integration of the Northwest merger, investments in new products and network, competitive cost structure along with an effort to strengthen the balance sheet will position Delta Air Lines for economic recovery. We are currently maintaining our Neutral rating on Delta Air Lines with the Zacks #3 (Hold) Rank.
August traffic for United Airlines, a wholly owned subsidiary of UAL Corporation (UAUA), increased 2.5% year over year to 11.3 billion. Capacity inched up 1.7% and load factor rose 60 bps to 86.7% from the year-ago period. United Airlines expects PRASM to climb 18%-19% year over year for the month.
Our current Zacks Consensus Estimate for United Airlines is $2.37 per share for the third quarter compared with net loss of 43 cents in the year-ago quarter, indicating a substantial growth of 650.5%. For fiscal 2010, the current Zacks Consensus Estimate is $4.54 compared with net loss of $7.49 in the year-ago quarter. We are currently maintaining our long-term Neutral recommendation on United Airlines supported by the Zacks #3 (Hold) Rank.
Following the pending merger with Continental Airlines Inc. (CAL), United Airlines will overtake Delta Airlines to become the world’s largest air passenger carrier. Continental Airlines’ traffic fell 0.4% with a capacity decrease of 1.1% in the month of August. Load factor was up 70 bps to 86.5% from the year-ago period.
August traffic for American Airlines, a wholly owned subsidiary of AMR Corporation (AMR), rose 3.1% with a capacity increase of 3.2% year over year. Domestic traffic inched up 0.6% on a 0.8% rise in capacity and international traffic upped 7.1% on a capacity increase of 7.0%. Currently, the stock has a Zacks #3 (Hold) Rank.
US Airways Group Inc. (LCC) said that its traffic rose 0.8% to 5.74 billion RPM. Capacity increased 1.2% and load factor was slightly down by 30 bps year over year. We are currently maintaining a Zacks #3 (Hold) Rank for the stock.
AMR CORP (AMR): Free Stock Analysis Report
CONTL AIRLS-B (CAL): Free Stock Analysis Report
DELTA AIR LINES (DAL): Free Stock Analysis Report
US AIRWAYS GRP (LCC): Free Stock Analysis Report
SOUTHWEST AIR (LUV): Free Stock Analysis Report
UAL CORP (UAUA): Free Stock Analysis Report
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