(DAL) August Air Traffic Adds Paltry Gains

Airlines’ struggle with rising fuel costs and weak business travel demand are leading to lower traffic and profits. Though fare hikes helped the major U.S. air carriers to somewhat manage August traffic in green, the earnings estimates are still trending downwards on the back of numerous macroeconomic headwinds. Notably, some low cost carriers once again emerged as the winners in August based on their low fares.

Airline traffic is customarily measured in billions of revenue passenger miles (RPM), which imply revenue generated per mile per passenger.

Consolidated August traffic edged up 0.4% at the largest U.S. airline United Continental Holdings Inc. (UAL), boosted by international traffic that negated the effect of weak domestic traffic. Capacity (or available seat miles) slid 0.6% year over year while load factor (percentage of seats filled with passengers) grew 90 basis points (bps) year over year to 86.6%. United Continental expects unit revenue to decline 0.5-1.5% year over year for the month of August, measured by passenger revenue per available seat mile (PRASM), a key metric in airlines.

These slight improvements do not offer any encouragement to the company’s profitability projections. In the last one month, the Zacks Consensus estimates for UAL went down by 88 cents to $2.70 and 58 cents to $4.53 for 2012 and 2013, respectively. Notably, the Zacks Consensus estimates for this year and the next were $3.58 and $5.11 one month back.

The August traffic for the second largest U.S. airline Delta Air Lines (DAL) grew only 0.2% year over year, as strong domestic traffic was offset by weak international traffic. Consolidated capacity fell 0.8% while the load factor improved a modest 90 bps to 87.8%. The company’s PRASM increased 4.0% year over year for August. Like UAL, earnings expectations for Delta have also been trending down. The current Zacks Consensus estimates of $2.03 and $2.63 for 2012 and 2013 are down from $2.14 and $2.85 a month ago, respectively.

Traffic for the low-cost carrier Southwest Airlines Co. (LUV) also nudged up 0.1% year over year in August on the back of 160 bps rise in load factor that partially offset 1.8% drop in capacity. The company expects PRASM to increase 2-3% year over year for August. The Zacks Consensus estimates for this year and the next have decreased by 9 cents to 70 cents and 6 cents to $1.00, respectively, in the past one month.

The discounted U.S. airline JetBlue Airways Corporation (JBLU) reported a 13.1% year-over-year traffic increase in August, the highest compared to its rivals. On a year-over-year basis, capacity rose 12.8% and load factor grew 30 bps to 87.6%. Despite the solid growth in traffic, earnings estimates for JetBlue are substantially down from the last month. The Zacks Consensus estimates fell by a nickel to 49 cents for 2012 and 4 cents to 63 cents for 2013.

Traffic at Alaska Air Group Inc. (ALK) also climbed 7.8% year over year in the month of August. Both capacity and load factor witnessed yearly increase of 7.1% and 60 bps, respectively. Like other airlines, earnings estimates for the company dropped for 2012 and 2013 over the past one month. The earnings estimates for Alaska are pegged at $4.81 and $5.32 for this year and the next, respectively.

The month’s traffic for US Airways Group Inc. (LCC) increased 5.3% year over year on strong capacity, which improved 5.3% year on year. Load factor was flat year over year at 87.3%. The earnings estimates for LCC have fallen significantly, with EPS estimates currently being $2.58 and $3.22 for this year and the next, down from $2.87 and $3.65, respectively, over the past one month.

For the short term (1-3 months), United Continental and Delta hold a Zacks #5 (Strong Sell) Rank and Zacks #4 (Sell) Rank, respectively. The other airlines – Southwest, JetBlue, Alaska and US Airways retain a Zacks #3 (Hold) Rank.

Read the full analyst report on “LUV”
Read the full analyst report on “LCC”
Read the full analyst report on “JBLU”
Read the full analyst report on “DAL”
Read the full analyst report on “UAL”
Read the full analyst report on “ALK”
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