(RPM) U.S. Air Traffic Shows Mixed for October

Air traffic remained mixed in October, like the month before. Airline traffic is measured in billions of revenue passenger miles (RPM), which implies one mile flown by one passenger.

The consolidated October traffic fell 5.1% at the largest U.S. airline United Continental Holdings Inc. (UAL). Both international and domestic traffic slid 4.4% and 6.3%, respectively. Capacity (or available seat miles) decreased 3.4% year over year and load factor (percentage of seats filled with passengers) decreased 150 basis points (bps).

United Continental expects a 9.5–10.5% year-over-year increase in unit revenue for the month of October, measured by passenger revenue per available seat mile (PRASM), a key metric in airlines.

The October traffic for the second largest U.S. airline Delta Air Lines (DAL) declined 3.8%, representing the record low level since January 2010. Domestic and international traffic fell 1.6% and 7% respectively, as result of a 3.1% year-over-year decline in capacity. Since traffic fell faster than capacity, the carrier’s load factor registered a decline of 60 bps.

However, the low-cost carrier Southwest Airlines Co. (LUV) recorded an improvement in October traffic outpacing capacity expansion. The carrier recorded a 3.5% year-over-year increase in October traffic on a capacity increase of 4% largely because of more passengers.

The month’s RPM increased to 8.7 billion from 8.4 billion in October 2010. Load factor fell to 81.4% from the year-ago level of 81.8%. The company expects PRASM to increase approximately 6% year over year for October 2011.

The discounted U.S. airline JetBlue Airways Corporation (JBLU) reported a 15.7% year-over-year traffic growth in October 2011, the highest among its rivals. On a year-over-year basis, capacity climbed 13.2% and load factor grew 180 bps to 82.6%.

October traffic for American Airlines, a wholly owned subsidiary of AMR Corporation (AMR), dropped 1.1% year over year resulting from a 0.7% capacity pull back. Load factor declined 30 bps. International traffic remained flat and domestic traffic fell 1.8% year over year.

Amidst of fuel price worries, capacity pull back, souring fares and debt crisis surrounding the U.S. as well as European economy, the low cost carriers seem to win the battle in an otherwise airline industry. Given the lower operational cost, these carriers remain successful in attracting passengers in the domestic market despite the current economic volatility. But the airline industry remains largely dominated by big players like Delta and UAL that are adversely affected by current underlying market fundamentals .

Though fuel prices hedging and capacity reductions have brought some relieve for these large carriers, the determining factor for infusing profitability in these cost-struggling carriers would still be traffic growth.

We are currently maintaining our long-term Neutral rating supported by the Zacks #3 Rank (Hold) on United Continental, Delta, Southwest Airlines and JetBlue. 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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