Ted Reed
For the airline industry, a reduced supply of seats combined with high demand produced strong May revenue trends that seem likely to continue into the summer.
Continental Airlines (CAL Quote - Cramer on CAL - Stock Picks) reported Wednesday that mainline revenue per available seat mile (RASM) rose about 7.5% in May. Separately, Spirit Airlines CEO Ben Baldanza said in an interview that his company expects double-digit RASM growth for the month. "We're bullish about the summer," Baldanza says. "Bookings are strong." Continental's monthly RASM reports are closely watched by analysts as an early indicator for business in the airline industry. Spirit is privately held. Continental said its May consolidated RASM, including express service, rose about 9%. Additionally, its consolidated load factor was 81%, up 1.9 points over the same month a year earlier. Domestic mainline load factor was 83.9%, up 2.7 points. Both were records for May. Continental's RASM growth tends to trail the industry average because the airline has been expanding while many carriers have been reducing capacity by shedding unprofitable routes. During the first quarter, domestic capacity fell 4.1%, the Air Transport Association, an industry group, has reported. Overall, capacity fell 1.9%, after international increases. Meanwhile, AMR's (AMR Quote - Cramer on AMR - Stock Picks) unit American Airlines reported that its load factor increased to 80.7% from 78.1% last month. American doesn't issue monthly RASM reports. American also said that its revenue passenger miles rose 3.7% in May, on a capacity increase of 0.3%. JPMorgan analyst Jamie Baker wrote in a research report that Continental's RASM growth exceeded his expectations and will likely lead to a 20.2% revenue increase. He's also looking for a 5.9% improvement in yield, or revenue per revenue seat mile. "There remains no evidence whatsoever of diminished demand or passenger resistance to higher fares," Baker says. "Given continued expected industry supply discipline, this phenomenon is expected to continue well beyond 2006." JPMorgan has had a financial relationship with Continental during the past 12 months.
RSS
