CSFB Raises Outlook for Airlines

A week before the airlines release quarterly results, Credit Suisse First Boston raised its earnings estimates for the industry.

CSFB analyst Jim Higgins raised forecasts above the Wall Street consensus on eight airlines, including bellwether Continental Airlines (CAL Quote), which is the first airline to release earnings, on July 16.

The note comes on the heels of Continental's disappointing release of June revenue data, which fell below CSFB forecasts and indicates that the quarter could be softer from a top-line perspective. But in Higgins' view, the industry is poised for a decent quarter, if only because of cost-cutting. As a result, the analyst raised industrywide estimates 20%.

"To the extent that revenues failed to gain traction in the quarter, and therefore disappoint, we believe the more recent trends indicated by managements will be generally encouraging," said Higgins. "We expect cost controls, broadly speaking, to impress."

Other airlines that Higgins raised estimates on were AirTran (AAI Quote), Alaska Air(ALK Quote), America West(AWA Quote), AMR(AMR Quote), Delta(DAL Quote), Northwest(NWAC Quote) and Southwest(LUV Quote).

Excluding bankrupt UAL (UALAQ Quote) and unlisted US Airways, Higgins expects the industry to lose $700 million in the second quarter, which was affected by the war in Iraq. That's down from his earlier estimate of an $860 million loss and the current Wall Street consensus of a $920 million loss.

On a company-specific basis, Higgins expects Continental to lose 80 cents a share in the second quarter, narrower than the 88-cent loss expected, on average, by Wall Street. But while Higgins narrowed loss estimates on other network carriers, such as Delta, Northwest and American Airlines' parent, AMR, the analyst said low-cost airlines would be the most likely to outperform.

"We nominate the domestic low-fare carriers, namely AirTran, America West and Southwest, under our coverage, as the most likely to positively surprise, as we believe there was some shoring up of low-end pricing late in the quarter that benefit those carriers soonest and most broadly," said Higgins.