After seeing busy traffic over the last two months, most of the
North American airlines witnessed weak traffic in July. Weakening
economy is restricting the demand for business travel, thereby
leading to lower traffic in July. This is expected to continue in
August and September. However, some low cost carriers emerged
winners in July on the heels of low fares.
Also, based on numerous macro headwinds, we are seeing indications
of a pronounced downtrend in earnings estimates for the U.S.
carriers.
Airline traffic is customarily measured in billions of revenue
passenger miles (RPM), which imply revenue generated per mile per
passenger.
Consolidated July traffic decreased 2.8% at the largest U.S.
airline
United Continental Holdings Inc.
(
UAL
). Both international and domestic traffic fell 1.9% and 4.6%,
respectively. Capacity (or available seat miles) slid 2.1% year
over year and load factor (percentage of seats filled with
passengers) declined 60 basis points (bps) year over year to 86.6%.
United Continental expects unit revenue to be flat year over year
for the month of July, measured by passenger revenue per available
seat mile (PRASM), a key metric in airlines.
This is resulting in lower projections for the company's
profitability. In the last one month, the Zacks Consensus estimates
for UAL went down by 99 cents to $3.58 and $1.00 to $5.11 for 2012
and 2013, respectively. Notably, the Zacks Consensus estimates for
this year and the next were $4.57 and $6.11 one month back.
The July traffic for the second largest U.S. airline
Delta Air Lines
(
DAL
) declined 2.8% year over year on weak domestic (down 1.6%) and
international (down 4.4%) traffic. Consolidated capacity fell 3.1%
while the load factor improved a modest 20 bps to 87.8%. The
company's PRASM increased 4.5% year over year for July.
Like UAL, earnings expectations for Delta have also been trending
down lately. The current Zacks Consensus estimates of $2.18 and
$2.87 for 2012 and 2013 are down from $2.41 and $3.06 a month ago,
respectively.
Traffic for the low-cost carrier
Southwest Airlines Co.
(
LUV
) remained flat year over year in July, as 0.6% growth in capacity
fully offset the 50 bps drop in load factor. The company expects
PRASM to increase 2% year over year for July. However, earnings
estimates for Southwest are moving down on the heels of European
woes and uncertain U.S. economic conditions. The Zacks Consensus
estimates for this year and the next have decreased by 4 cents (to
78 cents) and 2 cents (to $1.07) in the past one month.
The discounted U.S. airline
JetBlue Airways Corporation
(
JBLU
) reported a 7.1% year-over-year traffic increase in July. On a
year-over-year basis, capacity rose 5.5% and load factor grew 130
bps to 87.2%. Despite a growth in traffic, earnings estimates for
JetBlue are substantially down from the last month. The Zacks
Consensus estimates fell by a penny to 54 cents for 2012 and 2
cents to 67 cents for 2013.
Traffic at
Alaska Air Group Inc.
(
ALK
) also climbed 8.5% year over year, the highest compared to its
rivals, in the month of July. Both capacity and load factor rose
8.0% and 50 bps, respectively, year over year. As a result,
earnings estimates for the company are nicely up for 2012 but down
for 2013 since the past one month. The earnings estimates for
Alaska are pegged at $4.93 and $5.43 for this year and the next,
respectively.
The month's traffic for
US Airways Group Inc.
(
LCC
) inched up 0.4% year over year on strong capacity, which improved
2.2% from the year-ago month. Load factor however contracted 150
bps year over year to 86.2%. The earnings estimates for LCC have
fallen significantly of late, with EPS estimates currently being
$2.96 and $3.65 for this year and the next. These estimates fell
from $3.23 and $3.76, respectively, over the past one month.
For the short term (1-3 months), United Continental, Delta,
Southwest, JetBlue and Alaska hold the Zacks # 3 (Hold) Rank while
US Airways retains the Zacks #2 (Buy) Rank.
ALASKA AIR GRP (ALK): Free Stock Analysis
Report
DELTA AIR LINES (DAL): Free Stock Analysis
Report
JETBLUE AIRWAYS (JBLU): Free Stock Analysis
Report
US AIRWAYS GRP (LCC): Free Stock Analysis
Report
SOUTHWEST AIR (LUV): Free Stock Analysis Report
UNITED CONT HLD (UAL): Free Stock Analysis
Report
To read this article on Zacks.com click here.
Zacks Investment
Research