Profits Soar as Airlines Cut Seating Capacities
The airline sector is rallying today, led higher by US Airways (NYSE:LCC), which climbed as much as 20% today after the head of the airline said September unit revenue would grow an estimated 13% thanks in part to seat-capacity cuts. Industry executives confirmed that they have yet to see any signs of the contracting economy hurting their September bookings.
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“The demand environment is very robust,” said Scott Kirby, head of US Airways, during an analyst meeting. Kirby noted that there is a disconnect between what’s happening with the economy and what’s happening in the airline industry. “If I wasn’t reading the Wall Street Journal everyday and listening to CNBC when I’m driving to work in the morning, I would think that we were in the middle of a pretty strong economy.”
The NYSE Arca Airline Index is up 5% today, with all 15 components in the black. Delta Air Lines (NYSE:DAL) and United Continental (NYSE:UAL) climbed roughly 8%, while Southwest (NYSE:LUV), Alaska Air (NYSE:ALK), and JetBlue Airways (NASDAQ:JBLU) all rose nearly 5%.
Executives at both United Continental and Southwest Airlines said they expected to keep seat capacity flat in 2012, allowing them to increase ticket prices while filling flights. “Our bookings looks good for the rest of the month and we’re currently anticipating that our third-quarter [unit revenue] combined will be up in the low to mid single-digit range from the third quarter of 2010,” said Southwest Chief Financial Officer Laura Wright.
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Delta executives are estimating that third-quarter unit revenue will climb 10.5%, and capacity in 2012 will decline 2% to 3% compared to 2011. AMR Corp. (NYSE:AMR), which owns American Airlines and American Eagle, expects third-quarter consolidated passenger unit revenue to grow just over 7% on a year-over-year basis, and that’s including the $25 million negative-revenue impact of Hurricane Irene. AMR plans to trim an additional 0.5% from previously disclosed capacity plans during the fourth quarter, though capacity next year could rise as the carrier replaces its 140-seat MD-80 jets with new 160-seat Boeing (NYSE:BA) 737s.