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Air Powers' Big Business

May was a good month for airlines, as revenue per available seat mile rose by 12.6%, reflecting strong business travel growth and reduced capacity.

Legacy carriers have been particular beneficiaries, as their pricing has come closer to meeting their low-cost competitors.

"The surging RASM gains are not solely a function of capacity discipline, but underlying demand capacity as well," said JPMorgan analyst Jamie Baker, in a report on the data, which was compiled by the Air Transport Association.

Meanwhile, the number of corporate travelers on all domestic airlines grew 12.5% between February and April 6, while spending on corporate travel jumped 27% during the period, according to a survey of corporate customers compiled by AMR (AMR) unit American Airlines.

The survey of 1,400 top corporate customers shows "the improved business climate," said David Cush, American's senior vice president of general sales. American and other legacy carriers are getting a bigger share of corporate travelers than low-fare competitors, a result of moves early in 2005 to equalize fares between the two segments, he said in an interview.

"People have moved from the low-cost carriers back to the traditional carriers as we reduce the number of fare rules," Cush said. "People like our product, our schedule, our breadth and our frequent flier program. What they didn't like were our prices."

Baker noted that month-over-month mainline system revenue rose 1.1%, the second strongest April-to-May improvement since 2000. Yet domestic yields remain 16% below their peak, "implying still-significant pricing potential" and enabling airlines to "increasingly (wave) off ultra-price sensitive demand."

Merrill Lynch analyst Mike Linenberg said in a report that he currently predicts a June increase of 10% in mainline passenger revenue per available seat mile, but that "earnings could see further upside" and he may have to revise his estimates upward.
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