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Airline Revenue Better Than Expected

Mainline domestic revenue per available seat mile grew by 9.3% last month.
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Airline industry revenue growth continued to be strong in August, besting estimates by analysts who said they still expect a slowdown in demand but now anticipate it will first show up in the industry's September data.

The Air Transport Association reported Wednesday that August mainline domestic system revenue per available seat mile grew by 9.3%, a point to two ahead of the estimates. Internationally, Pacific and Latin American revenue grew by double-digit margins, while trans-Atlantic RASM rose by 1%.

"August's results indicate the revenue trend continues to be strong despite recent concerns of weaker demand," said Merrill Lynch analyst Mike Linenberg, in a report. "However, some carriers have indicated that they are seeing some softness in parts of their system for September."

Linenberg and JPMorgan analyst Jamie Baker said they expect September RASM growth to slow to as little as 6%. Linenberg said September comparisons will be more difficult because unit revenue increases began to pick up in the fall of 2005. Baker said he anticipates a lag between the Aug. 10 disclosure of terrorist attacks being planned from the U.K. and changes in travel patterns related to security procedure changes.

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"We believe September and October will serve as more meaningful barometers of current demand," Baker wrote in a report. However, he noted that mainline revenue declined $6.7 billion from July to August, "the steepest sequential decline on record."

Despite the drop, Baker noted that the recent pullback in oil prices "all but ensure meaningful industry earnings growth in 2007, except under the most draconian demand scenario."