Wednesday, July 9, 2014

American, Southwest signal solid demand ahead of earnings

American Airlines Group Inc and Southwest Airlines Co forecast growth in an important revenue measure for the second quarter, signaling that demand for air travel is solid during the summer.

Unit revenue, also known as passenger revenue per available seat mile, is expected to grow between 5.5 percent and 6.5 percent in the second quarter at American, while Southwest forecast a rise of more than 8 percent. Unit revenue is a gauge of how full planes are and of pricing power.

Demand "is as strong as ever," said Bob McAdoo, an airline analyst with investment bank Imperial Capital, who said American gave a stronger-than-expected outlook and that Southwest revenue results were up "meaningfully."

Recent profit warnings from European airlines such as Air France-KLM and Lufthansa had raised concern about demand trends, pummeling share prices.

Last week, Delta Air Lines said unit revenue for June grew less than it had forecast, citing lower business demand for travel to Latin America during the World Cup soccer tournament and capacity increases that hurt ticket prices. Delta forecast a rise of 6 percent in its second quarter unit revenue.

McAdoo said the European carriers faced issues that did not affect U.S. airlines as much, such as heavier competition from low-cost rivals.

The second quarter is typically a strong period for airlines because it includes some vacation travel.

American Airlines, formed in the December 2013 merger of AMR Corp and US Airways Group, said it could take charges of up to $630 million in the period. It cited a charge of about $330 million tied to the sale of its portfolio of fuel-hedge contracts and an added $250 million to $300 million in charges related to its merger and other items.

Shares of U.S. airlines were mostly higher in morning trading, with American Airlines up 1.9 percent at $41.01 and Southwest up 2.1 percent at $27.26. Delta was up 1.5 percent at $36.98, and United Continental was off 0.1 percent at $39.50.

(Reuters)

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