(RPM) U.S. July Air Traffic Improves

Despite rising fuel prices, renewed uncertainties in the U.S. economy as well as debt concerns in Europe, air carriers’ traffic improved in July on high fares and capacity cuts.

Airline traffic is measured in billions of revenue passenger miles (RPM), which implies one mile flown by one passenger.

The consolidated July traffic dipped 0.1% at the largest U.S. airline United Continental Holdings Inc. (UAL). The drop of 0.4% in international traffic was partially offset by a rise of 0.3% in domestic traffic. The 0.2% increase in capacity (or available seat miles) was partially offset by a 30 basis point (bp) year-over-year decrease in the load factor (percentage of seats filled with passengers).

United Continental expects 7.5% to 8.5% year-over-year increase in unit revenue for the month of July, measured by passenger revenue per available seat mile (PRASM), a key metric in airlines.

The July traffic for the second largest U.S. airline Delta Air Lines (DAL) remained stable year over year. Consolidated capacity inched up 1% while the load factor fell 70 bps. Domestic traffic dipped 0.9% year over year on a capacity decline of 0.8% and a 20-bp decrease in load factor. International traffic rose 1.5% year over year on a 3.3% capacity increase, partially offset by a 150 bp decline in load factor.

The low-cost carrier Southwest Airlines Co. (LUV) recorded an increase of 5.9% year over year in July traffic on a capacity increase of 6.6%. The month’s RPM increased to 10 billion from 9.5 billion in July 2010. Load factor dipped to 85.1% from the year-ago level of 85.6%. The company expects PRASM to increase 1% year over year for July 2011.

The discounted U.S. airline JetBlue Airways Corporation (JBLU) reported an 11.1% year-over-year traffic increase in July 2011, the highest compared to its rivals. On a year-over-year basis, capacity climbed 11.6% and load factor fell 30 bps to 85.9%.

July traffic for American Airlines, a wholly-owned subsidiary of AMR Corporation (AMR), rose 1.7% year over year on a capacity growth of 0.9% and load factor increase of 70 bps. Strong international traffic (up 5%) was partially offset by weak domestic traffic (down 0.7%).

We do not see escalating fuel prices as a major concern for the air carriers in the short term. Crude oil prices have dropped sharply over the last two weeks. On the other side, airline companies are rolling back their increased fares following the resumption of federal taxes and fees on ticket prices.

However, if oil price show a rally again, air carriers may suffer due to reduced airfares, a weak economy and the current turmoil in the stock market.

We are currently maintaining our long-term Neutral rating supported by the Zacks #3 (Hold) Rank on United Continental, Southwest Airlines and JetBlue. Delta Air Lines retains a long-term Neutral rating with a Zacks #4 (Sell) Rank. AMR Corp. retains a short-term Hold rating with the Zacks #3 Rank.

AMR CORP (AMR): Free Stock Analysis Report

DELTA AIR LINES (DAL): Free Stock Analysis Report

JETBLUE AIRWAYS (JBLU): Free Stock Analysis Report

SOUTHWEST AIR (LUV): Free Stock Analysis Report

UNITED CONT HLD (UAL): Free Stock Analysis Report

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