The Zacks Analyst Blog Highlights: United Continental Holdings, Delta Air Lines, Southwest Airlines, JetBlue Airways and AMR

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Oct 14, 2011, 09:30 ET

CHICAGO, Oct. 14, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: United Continental Holdings Inc. (NYSE: UAL), Delta Air Lines (NYSE: DAL), Southwest Airlines Co. (NYSE: LUV), JetBlue Airways Corporation (Nasdaq: JBLU) and AMR Corporation (NYSE: AMR).

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Here are highlights from Thursday's Analyst Blog:

Mixed Sky Traffic in September

Despite a strong profit outlook for 2011 by The International Air Transport Association (IATA) as well as fare hikes and capacity pull backs, air carriers posted mixed traffic results in September primarily on fluctuations in economic conditions and debt concerns in Europe.

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

The consolidated September traffic dipped 1.7% at the largest U.S. airline United Continental Holdings Inc. (NYSE: UAL). Both international and domestic traffic plunged 1.3% and 2.5%, respectively. Capacity (or available seat miles) decreased 1% year over year and load factor (percentage of seats filled with passengers) dropped 50 basis points (bps).

United Continental expects a 13–14% year-over-year increase in unit revenue for the month of September, measured by passenger revenue per available seat mile (PRASM), a key metric in airlines.

The September traffic for the second largest U.S. airline Delta Air Lines (NYSE: DAL) also declined 0.9% primarily due to reduced flying. Domestic traffic inched up 0.5%, offset by 2.8% decrease in international traffic. Consolidated capacity fell 2.2% year over year. Given the faster decline in capacity compared to traffic resulted in strong improvements in load factor that shot up 110 bps.

However, the low-cost carrier Southwest Airlines Co. (NYSE: LUV) recorded an improvement in September traffic outpacing capacity expansion. The carrier recorded a 6.4% year-over-year increase in September traffic on a capacity increase of 3.2% primarily on increase in passengers.

The month's RPM increased to 7.9 billion from 7.5 billion in September 2010. Load factor increased to 77.8% from the year-ago level of 75.5%. The company expects PRASM to increase approximately 12% year over year for September 2011.

The discounted U.S. airline JetBlue Airways Corporation (Nasdaq: JBLU) reported a 14.6% year-over-year traffic growth in September 2011, the highest compared to its rivals. On a year-over-year basis, capacity climbed 10.4% and load factor grew 300 bps to 80.6%.

September traffic for American Airlines, a wholly owned subsidiary of AMR Corporation (NYSE: AMR), also rose 1.9% year over year on a capacity growth of 0.3% and load factor increase of 130 bps. International traffic increased 2.2% and domestic traffic inched up 1.7% year over year.

Airline industry still continues to be hit by the increasing fuel cost burden. As per the recent projection of IATA, fuel cost is estimated at $176 billion for the full year, representing a 30% of the industry costs this year. Further, the rolling back of increased fares following the resumption of federal taxes and fees on ticket prices also raises our concern over the industry.

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.

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