Land, Sea, Oil Mar Sky Traffic - Analyst Blog
08 Abril 2011 - 6:45AM
Zacks
The U.S. carriers recorded only modest improvements in traffic
during March. Airline traffic is measured in billions of revenue
passenger miles (RPM), which implies one mile flown by one
passenger.
Following the massive earthquake and tsunami in Japan on March
11, carriers introduced drastic cuts in their capacity. Fears of
flying to Japan soared and the demand for air travel dropped,
hurting the overall profitability. Persistently rising fuel prices
have also surfaced as a major headwind to the airlines
industry.
However, we believe the carriers will be able to handle these
two situations. In all probability, the capacity cuts are
temporary, and should last only for the next two-three months.
Also, the U.S. carriers are combating rising fuel prices with
increasing fares and extra fees.
The consolidated Marchtraffic dipped 2.2% at United
Continental Holdings Inc. (UAL), thelargest U.S. airline.
Both domestic and international traffic declined 2.3% and 2.4%,
respectively.
The 2.1% growth in capacity (or, available seat miles) was
offset by 350 bps year-over-year decline in the load factor
(percentage of seats filled with passengers). United
Continentalexpects 8% to 9% year-over-year increase in unit revenue
for the month of March, measured by passenger revenue per available
seat mile (PRASM), a key metric in airlines.
We believe United Continental will continue to benefit from
merger synergies, global network, strong competitive positioning,
low costs, fleet optimization and a strong liquidity position. The
Zacks Consensus projects a loss of 37 cents for the first quarter
of 2011, representing an improvement from a loss of 55 cents in the
year-ago quarter.
However, the magnitude of the loss was increased in the last 7
days and 30 days from 30 cents and 25 cents, respectively. This was
the result of the company’s decision to cut its Japan flights.
Delta Air Lines (DAL), the second largest U.S.
airline, reported a 0.5% year-over-year traffic increase in March
on a 6.2% capacity growth partially offset by a 450 bps decline in
load factor. Domestic traffic inched up 0.7% year over year on
capacity increase of 3.2%, partially offset by a 210 bps decline in
the load factor to 83.3%. International traffic also got a 0.2%
year-over-year nudge from a 10.9% capacity increase while load
factor decreased 800 bps to 74.3%.
The Zacks Consensus projects a loss of 42 cents for the first
quarter compared with a loss of 23 cents in the year-ago quarter.
This represents a significant 81.03% year-over-year decline. In
addition, the magnitude of the loss was increased in the last 7
days and 30 days from 38 cents and 18 cents, respectively.
We believe the capacity cuts in Japan will result in declining
profitability for the company. Delta Air Lines has the largest
presence in Japan relative to other U.S. carriers.
The low-cost carrier Southwest Airlines Co.
(LUV) recorded a 9.8% year-over-year rise in March traffic on a
capacity increase of 8.9%. The month’s RPM increased to 7.3 billion
from 6.7 billion in March 2010. Load factor grew to 81.6% from the
year-ago level of 81%. The company expects PRASM to increase 8% to
9% year over year for March 2011.
Since Southwest provides point-to-point services in the U.S., it
was not impacted by the catastrophe in Japan. Our current Zacks
Consensus Estimate for Southwest Airlines is 3 cents for the first
quarter, which is flat with the year-ago quarter. However, we do
not see any increase from the year-ago level due to escalating fuel
prices, which are likely to eat away the profits of the
company.
We believe Southwest Airlines’ acquisition of AirTran
Holdings (AAI), scheduled this year, should augur well.
March traffic for AirTran Airways, a subsidiary of AirTran
Holdings, grew 5.5% year over year to more than 1.8 billion on
capacity increase of 6.8%. Load factor expanded 100 bps to 82.8%
from the year-ago quarter.
March traffic for American Airlines, a wholly owned subsidiary
of AMR Corporation (AMR), inched up 0.8% year over
year on capacity increase of 2.6% partly offset by a 150 bps
decline in load factor. Strong international traffic was partially
offset by weak domestic traffic.
Currently, we maintain our long-term Neutral rating on Southwest
Airlines and Delta Airlines, and Underperform rating on United
Continental Holdings. For the short term (1–3 months), Southwest
Airlines retains the Zacks # 3 (Hold) Rank, Delta Airlines retains
the Zacks #4 (Sell) Rank, and United Continental Holdings has a
Strong Sell rating with Zacks #5 Rank.
AIRTRAN HLDGS (AAI): Free Stock Analysis Report
AMR CORP (AMR): Free Stock Analysis Report
DELTA AIR LINES (DAL): Free Stock Analysis Report
SOUTHWEST AIR (LUV): Free Stock Analysis Report
UNITED CONT HLD (UAL): Free Stock Analysis Report
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