Airlines companies have reported their June 2010 traffic results. Airlines traffic, measured in billions of revenue passenger miles, increased from an improvement in the global economy, improved business travel, international traffic and rising fares. Airlines are increasing their capacity in order to restore profitability and posted higher unit revenue growth for the month of June. The stocks have risen on account of improved June traffic.
The low-cost carrier Southwest Airlines Co. (LUV: 11.4225 +0.1325 +1.17%)recorded June traffic of 5%, the largest increase relative to its peers, on a capacity (or, available seat miles) increase of 1.9% year over year. Load factor (percentage of seats filled with passengers) was 81.9%, up 240 basis points (bps) year over year.
The low-cost carrier Southwest Airlines Co. (LUV: 11.4225 +0.1325 +1.17%)recorded June traffic of 5%, the largest increase relative to its peers, on a capacity (or, available seat miles) increase of 1.9% year over year. Load factor (percentage of seats filled with passengers) was 81.9%, up 240 basis points (bps) year over year.The company saw a 24% increase in unit revenue, measured by passenger revenue per available seat mile (PRASM), a key metric in airlines. Revenue passenger miles (RPM) increased to 7.1 billion compared with 6.7 billion in the year-ago period. RPM is the revenue generated for every mile a passenger flies.
We are currently maintaining our long-term Neutral rating on Southwest Airlines. However, we believe that despite a difficult operating environment, the company will benefit in the short term based on its strong balance sheet, low costs, several revenue initiatives and network optimization. Thus, we are holding our short-term recommendation of Buy with the Zacks #2 Rank.
Our current Zacks Consensus Estimate for Southwest Airlines is 26 cents per share for the second quarter compared with earnings of 8 cents in the year-ago quarter. If the company meets the Zacks Consensus Estimate, it would lead to a substantial gain of 229.8% year over year. Similarly, for the third quarter, the current Zacks Consensus Estimate of 25 cents indicates a whopping growth of 733.3% year over year.
Delta Air Lines (DAL: 11.61 -0.10 -0.85%), the world’s largest airline, reported a traffic increase of 4.2% year over year in June based on a 1.5% capacity increase and 87.7% load factor, which indicates an improvement of 220 bps from the year-earlier quarter. The company flew 18.53 billion RPM in June 2010 compared with 17.78 billion in the year-ago period.
We are currently maintaining our long-term Neutral rating on Southwest Airlines. However, we believe that despite a difficult operating environment, the company will benefit in the short term based on its strong balance sheet, low costs, several revenue initiatives and network optimization. Thus, we are holding our short-term recommendation of Buy with the Zacks #2 Rank.
Our current Zacks Consensus Estimate for Southwest Airlines is 26 cents per share for the second quarter compared with earnings of 8 cents in the year-ago quarter. If the company meets the Zacks Consensus Estimate, it would lead to a substantial gain of 229.8% year over year. Similarly, for the third quarter, the current Zacks Consensus Estimate of 25 cents indicates a whopping growth of 733.3% year over year.
Delta Air Lines (DAL: 11.61 -0.10 -0.85%), the world’s largest airline, reported a traffic increase of 4.2% year over year in June based on a 1.5% capacity increase and 87.7% load factor, which indicates an improvement of 220 bps from the year-earlier quarter. The company flew 18.53 billion RPM in June 2010 compared with 17.78 billion in the year-ago period.Domestic traffic rose 1.2% year over year based on a 0.6% capacity increase and load factor of 87.7%, which was up 60 bps year over year. Similarly, international traffic increased 8.8% year over year on a 2.9% increase in capacity, and the load factor rose 480 bps to 87.8%.
We are currently maintaining our Outperform rating on Delta Air Lines with the Zacks #2 (Buy) Rank. We are encouraged by the improving revenue trends and a global recovery. Moreover, we believe that the successful integration of the Northwest merger, investments in new products and network, and an effort to the strengthen balance sheet will position Delta Air Lines favorably.
We are currently maintaining our Outperform rating on Delta Air Lines with the Zacks #2 (Buy) Rank. We are encouraged by the improving revenue trends and a global recovery. Moreover, we believe that the successful integration of the Northwest merger, investments in new products and network, and an effort to the strengthen balance sheet will position Delta Air Lines favorably.
Our current Zacks Consensus Estimate is 65 cents for the second quarter compared with a net loss of 24 cents per share in the year-ago quarter, indicating a significant growth of 372.6%. For the third quarter, the current Zacks Consensus Estimate is $1.00 compared with just 6 cents in the year-ago quarter.
June traffic for American Airlines, a wholly-owned subsidiary of AMR Corporation(AMR: 6.70 -0.04 -0.59%), rose 3.2% year over year to 11.25 billion RPM and the capacity increased 1.3% year over year. Domestic traffic inched up 1.2% on a 0.6% rise in capacity and international traffic went up 6.6% on a capacity increase of 2.4%. Currently, we have Zacks #3 Rank (Hold) on the stock.
US Airways Group Inc. (LCC: 9.155 -0.165 -1.77%) said that its traffic increased 2.9% with strong growth in Latin America compensating for lesser growth in domestic traffic. The company flew 5.79 billion RPM versus 5.63 billion in the year-ago period. Mainline capacity inched up 2.8% and load factor was slightly up by 10 bps year over year at a record 86.9% for June. We are currently assigning the Zacks #1 Rank (Strong Buy) for the stock.
Continental Airlines Inc. (CAL: 21.58 +0.25 +1.17%) traffic rose 4.7% year over year and load factor shot up 210 bps year over year. We are currently maintaining our Zacks #2 Rank (Buy) for Continental Airlines.
June traffic for American Airlines, a wholly-owned subsidiary of AMR Corporation(AMR: 6.70 -0.04 -0.59%), rose 3.2% year over year to 11.25 billion RPM and the capacity increased 1.3% year over year. Domestic traffic inched up 1.2% on a 0.6% rise in capacity and international traffic went up 6.6% on a capacity increase of 2.4%. Currently, we have Zacks #3 Rank (Hold) on the stock.
US Airways Group Inc. (LCC: 9.155 -0.165 -1.77%) said that its traffic increased 2.9% with strong growth in Latin America compensating for lesser growth in domestic traffic. The company flew 5.79 billion RPM versus 5.63 billion in the year-ago period. Mainline capacity inched up 2.8% and load factor was slightly up by 10 bps year over year at a record 86.9% for June. We are currently assigning the Zacks #1 Rank (Strong Buy) for the stock.
Continental Airlines Inc. (CAL: 21.58 +0.25 +1.17%) traffic rose 4.7% year over year and load factor shot up 210 bps year over year. We are currently maintaining our Zacks #2 Rank (Buy) for Continental Airlines.
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