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.
ALASKA AIR GRP (ALK): Free Stock Analysis
DELTA AIR LINES (DAL): Free Stock Analysis
JETBLUE AIRWAYS (JBLU): Free Stock Analysis
US AIRWAYS GRP (LCC): Free Stock Analysis
SOUTHWEST AIR (LUV): Free Stock Analysis Report
UNITED CONT HLD (UAL): Free Stock Analysis
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Airline traffic is customarily measured in billions of revenue
passenger miles (RPM), which imply revenue generated per mile per
Consolidated August traffic edged up 0.4% at the largest U.S.
United Continental Holdings Inc.
), 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
) 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
) 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
) 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.
Alaska Air Group Inc
) 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
) 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
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.