Airlines' optimism rises with fuller flights

By Dan Reed
USA Today

After a long absence, optimism is creeping into the airline business. Here's why:

• Major airlines filled about 80 percent of their seats this summer, a record. Large reductions in capacity more than compensated for a small decline in travel demand from 2002.
• Some airlines' shares have made strong gains the past month. American Airlines' parent AMR closed at $13.23 yesterday, up 65 percent since Aug. 4; Continental, $18.56, up 52 percent since Aug. 7; Delta, $15.04, up 43 percent since Aug. 6.
• Losses still exceed profits industrywide, but some industry analysts have raised earnings estimates on most carriers for the rest of this year, and for 2004.

Sam Buttrick of UBS Investment Research, the first to do so, now expects AMR and Continental to turn a profit in 2004, and America West, Southwest and Alaska Airlines to earn more than he first thought. Continental and America West will show third-quarter profits, and AMR will be "within spitting distance" of one, he adds.

Buttrick also cut his forecast losses for Delta and United in 2004. He cut his loss estimate for Northwest for the rest of 2003, but kept his 2004 loss estimate. US Airways, five months out of bankruptcy reorganization, does not have public stock and analysts don't publish forecasts for it.

Rising optimism is built largely on the hope that an improving economy will generate more business travel, as happened in previous economic recoveries. So far, there's scant evidence of that.

Henry Joyner, American Airlines' head of planning, says that in 20 years of predicting demand he has "never seen it so difficult to forecast fall traffic."

Early fall school starts, and the second anniversary of the Sept. 11 terrorist attacks are clouding the picture. But the biggest factor, he says, is that consumers are waiting longer than ever to buy tickets.

Business travelers are clear on one point: They won't pay as much as they used to.

"I don't think the absolute level of business (travel) revenue will return any time soon to the levels we saw back in '98 and '99," Joyner says.

Yet, like others, he is buoyed by a strengthening economy.

"With any luck, we'll see some improvement in the economy and some improvement in business travel."

Southwest Airlines finance chief Gary Kelly says there's no "empirical information that tells me 2004 will be a great recovery year for us." But, "I wouldn't be surprised."

September and October bookings "suggest improving trends, but not records," he says.

"We're not where we were before 9-11, but given where we've come from, it's a pretty satisfactory recovery that seems to be beginning."