November falls short for airline analysts
By Eric Torbenson
Dallas Morning News
The airline industry expected big things in November.
Revenue and traffic figures stood to benefit from having the Sunday after Thanksgiving fall within the month instead of being pushed into December, as it was last year.
But while major carriers are faring better than they did during November 2002, they're not showing enough improvement to wow Wall Street analysts.
Continental Airlines Inc., which generally has served as a proxy for other major carriers, said its revenue per seat mile flown rose 4.5 percent to 5.5 percent over last November.
That didn't thrill analysts including Jim Higgins of Credit Suisse First Boston.
"While we are expecting that overall industry revenues will exhibit somewhat greater strength than (Continental's) results," he wrote in a note to investors this week, "we are disappointed in the apparent inability to improve pricing in a month that saw a significant period of holiday demand."
What's more, Higgins is wary of carriers' plans to add as much as 8 percent more seats next year. If November's revenue results are any indication, airlines may be forced to sell tickets at deep discounts next year.
Airline shares decline
Only Continental releases its revenue results along with its monthly traffic figures. Since Continental's revenue report came out Monday evening, shares in the carrier have dropped 8.9 percent to $17.28. Shares of AMR Corp., the parent of American Airlines, dipped 5.5 percent to $12.20. Delta Air Lines Inc. shares are off 4.8 percent to $11.84 over the same two trading days.
Low ticket prices are at the root of the big carriers' problems. Fares remain at lows not seen since the 1980s. A round-trip ticket on American Airlines to New York from Dallas/Fort Worth International Airport, for example, can be had for as little as $203.
Trends aren't encouraging, analysts said, adding they wish carriers would delay adding capacity so they can help push up average ticket prices.
"I'd prefer the carriers not add back those seats," said Ray Neidl of Blaylock & Partners. "It seems like each individual legacy carrier is trying to win back market share."
Most carriers, Neidl said, are simply flying their planes on longer routes and more frequently to increase their schedules. That strategy helps them hold down labor costs because they don't have to add flight crews.
By flying lighter schedules than last year in the face of slowly rising demand for air travel, carriers had hoped to raise average fares.
The load factors — how full planes are with paying customers — are at record levels for several carriers, but analysts had hoped that zestier demand for diminished supply would translate into fewer rock-bottom fares.
American to add seats
Fort Worth-based American will add as much as 6 percent more capacity next year, but at very low cost, its executives say.
The carrier has seen some encouraging trends in higher-priced business travel, which can help speed fares and mean the most to airline profitability.
American has also discounted its tickets less frequently than last year and performed slightly better than Continental in terms of revenue per seat flown in recent months.
But chief financial officer Jeff Campbell, who is leaving the airline next month, said in October that by historic standards, fares are still weak.
American spokesman Tim Wagner declined to comment on the carrier's revenue outlook yesterday.
Other concerns lie ahead for the industry's recovery. Fuel prices remain stubbornly high. Yesterday, American added a 6-cent-per-pound fuel surcharge to its cargo shipments.
And the next few months — with the exception of the December holidays — are traditionally the slowest for airlines, most of which worked hard this summer to increase their cash reserves to help get through the winter.
American has more than $3 billion in liquidity after watching that amount dip below $1 billion this spring.
"My thesis is that this slower revenue trend will continue into the early months of next year," Neidl said. "But if the economy picks up more than we expect, those extra seats may provide some windfall."
