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Old 06-29-2005, 08:59 PM   #1  
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Default U.S. majors see 1st glimmers of hope

US majors see first glimmers of hope

Flight International

Buried beneath news of their ever-growing fuel-cost burden, US carriers have quietly begun to enjoy a modest revenue recovery in recent months.

Driven by increasing consumer tolerance of higher prices, a booming economy and the effects of negotiated labour cost cuts, this buoyancy may not be strong enough to offset all of the increased cost of fuel, but stands to make for a good summer in which record traffic is expected.

In May, industry-wide unit revenues for mainline carriers rose 5.2% year-over-year, “nicely ahead” of JP Morgan analyst Jamie Baker’s 3-4% forecast. Capacity rose by 2.4% during that month. Revenue for the eight majors increased 7.7% compared to the same period in 2004, while yields rose slightly, by 0.6%, he says. Baker points out that “albeit modest, this represents the first instance of positive year-over-year yields in nine months”.

Lehman Brothers analyst Gary Chase says the revenue increase is “far above” his expectations. May “seems to have marked a material improvement in industry revenue generation”, he says. Chase expects that second-quarter revenue will be positive across the board as a result. Whether the revenue recovery will make it harder for airlines to restrain wage and other supplier demands is uncertain. Continental Airlines, in the middle of union concession talks, hastened to make known that it would still lose money for the year.

The airlines have attempted 11 major fare increases so far this year, and of them, eight have been widely adopted. The results suggest that the fare reform and simplification begun in January by Delta Air Lines, and followed with variations by most legacy carriers, has been less painful than feared. American chief executive Gerard Arpey told an investor conference in early June that “fortunately, the lowering of unrestricted fares has had less of a dulutive effect than many expected”.

This rising revenue tide certainly will lift some vessels higher than others. Continental, which has always reported its monthly results earlier and more frequently than others and so is seen as a key industry barometer, says its May unit revenues rose by 9.5% year-over-year. Baker says “unit revenues of this magnitude all but assure it a second-quarter profit despite surging energy costs”. At America West, chief executive Doug Parker has said the airline, in merger talks with US Airways, expects double-digit revenue gains this quarter.

DAVID FIELD WASHINGTON
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