Airlines See Steady October

Airlines filled more seats in October than they did a year ago, but fare prices were still cheap and demand was flat -- a reminder that the strong summer season is over.

Nonetheless, with shares steady after strong third-quarter earnings and with October results matching analyst expectations, stocks could be growing more attractive to investors who missed the rally.

Continental Airlines(CAL), a bellwether for the rest of the network carriers, said traffic increased in October on the year, while revenue passenger miles, or traffic, grew 3.1% from last year, and capacity, or available seat miles, fell 3.3%. As a result, load factor for October, or the percentage of seats filled on every plane, hit 74% for the month, up from last year's 69.4%.

The carrier also said revenue per available seat mile, a key metric called RASM, increased between 3.5% and 4.5% over last year's RASM. While this means Continental is generating more revenue for every mile flown and indicates that metrics are moving in the right direction, analysts noted that yields continue to fall, which means pricing power remains weak and fare sales are driving some of the demand.

"Results confirm what we already knew. Summer is over. While in line with expectations, Continental's results certainly highlight the degree to which this remains a low-yield, traffic-driven recovery," said Jamie Baker, analyst at J.P. Morgan. "Until such time corporate travel budgets are reset -- obviously a year-end occurrence -- we do not anticipate anything other than anecdotal evidence of a business travel recovery."

The Mother Load Airlines continue to post solid gains to load factor, as traffic gains continue to outpace capacity changes
Carrier	Traffic % Change	Capacity % Change	Load Factor Oct. 2003	Load Factor Oct. 2002
American	-1.7	-4.1	70.2	68.5
Continental	3.1	-3.3	74.0	69.4
Southwest	5.7	3.9	63.6	62.5
AirTran	33.6	21.0	69.1	62.6
Mesa	58.5	39.9	66.7	58.9
ExpressJet	58.6	43.0	70.3	63.3
Source: Company Reports

Other Wall Street analysts backed up Baker's sentiments, telling investors that Continental's October performance was in line with fourth-quarter expectations. And other network carriers echoed Continental's results, using tight capacity controls to drive load factor increases.

American Airlines, a unit of AMR (AMR), said traffic fell 1.7% on the year, marking the eighth-straight quarter of declining traffic. Nonetheless, load factors remain high, coming in at 70.2%, up 1.7 percentage points, because the company's traffic didn't fall as fast as capacity, which dropped 4.1% from last October.