The analyst says AMR derives more of its revenue -- 70% -- from the domestic market than other legacy airlines, giving it significant leverage to improving domestic revenue trends.
Both AMR and Continental should be in the black in 2006, assuming crude oil averages $60 and the crack spread, or cost of refining that oil, averages $20, Strine writes. "Of course, a few-dollar move in oil could spoil that," he acknowledges.
Elsewhere, Calyon Securities analyst Ray Neidl cautions that although airline stocks appear to be in a mini-rally on improving expectations, shares will likely see a pullback before the slow winter season.
Also, Continental late Tuesday said unit revenue rose between 3.5% and 4.5% in October from a year ago in its mainline operations, which exclude smaller regional flights. Mainline passenger traffic increased 6.1% as Continental raised capacity 8.1%. That combination meant the airline filled an average of 77.4% of its mainline seats, down 1.5 points from a year ago.
The numbers suggest Continental's yield, which measures average fares, rose 6% year over year, according to J.P. Morgan's Baker.
Continental is notable among major airlines because it regularly releases monthly unit revenue performance. Although market watchers often use that performance as a proxy for the industry, Baker says Continental's monthly unit-revenue growth will probably lag the industry's in coming months, because the airline continues to expand capacity while rivals hold it flat or reduce it.