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Airlines are releasing results for November, but although planes are more full than last year and traffic continues to rise, even optimistic analysts are growing concerned that pricing power and profit margins will lag in 2004.

Continental Airlines

(CAL) - Get Caleres, Inc. Report

said late Monday that revenue passenger mile, or traffic, was up 8.7% annually during November, while the number of available seat miles, or capacity, increased by 0.7%. With traffic outpacing supply, the percentage of seats filled on every flight, known as load factor, rose to 75.3%, up from last year's 69.8%.

But while these fundamentals are moving in the right direction, there are signs that Continental -- and the rest of the industry -- is continuing to use discounts to drive demand and isn't showing much improvement in pricing. Indeed, Continental said that revenue per available seat mile, a key metric called RASM, increased between 4.5% and 5.5% during November, which disappointed many Wall Street analysts.

"Continental's November RASM

was modestly below our 6.5% to 7.0% estimate and despite this year's return of Thanksgiving Sunday into November, which we believe should have had a more pronounced positive effect on RASM," said Jamie Baker, analyst for J.P. Morgan, in a note. "To the extent that 'consensus' for Continental's November RASM exists, we expect others to be mildly disappointed."

Indeed, Continental missed RASM targets at a number of brokerage houses, like Credit Suisse First Boston, which expected growth between 9% to 11%. In reaction, CSFB analyst James Higgins said he would have to reassess the near-term prospects for airline stocks, a notable position given the

recent rise of optimism by many analysts.

"We are disappointed in the apparent inability to improve pricing in a month that saw a significant period of holiday demand," said Higgins, in his note. "These results give us less confidence in our favorable near-term stance on airline stocks. We believe a near-term pullback in the shares is likely, and will reassess our view once the dust settles."

Will November Spawn a Monster?

Analysts also warned the weak November could be a bad omen for 2004. Morgan Stanley analyst William Greene warned that Continental could miss his fourth-quarter loss estimate of 80 cents if December's RASM doesn't show growth between 5% and 6%. And as CSFB's Higgins notes, with both low-cost and network carriers planning add back flights next year, Continental's results may indicate that pricing power will remain weak.

"With unit revenues no stronger than they were in November on only modestly more capacity, nothing in what we saw bolsters our confidence that 2004's estimated 7% to 8% capacity rise can be absorbed without significant price discounting," Higgins said.

Airline stocks dropped in reaction the November results. Continental was the biggest loser, falling 62 cents, or 3.3%, to $18.26, while

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Delta

(DAL) - Get Delta Air Lines, Inc. Report

fell 34 cents, or 2.7%, to $12.11.

Other Carriers Report

Other airlines also released November results, with

AMR

(AMR)

unit American Airlines announcing a 3% traffic increase over last year, vs. a capacity decrease of 1.6%, which boosted its load factor to 70.6%, up 3.1 percentage points. But international traffic was the real driver of American's traffic, which jumped 12% over November 2002, while domestic traffic actually fell 0.6%. AMR shares were off 19 cents, or 1.5%, to $12.73.

AirTran

(AAI)

, Delta's low-cost rival in Atlanta, continued to show rapid growth in November, announcing that traffic, capacity and the number of passengers enplaned hit record levels during the month. On a year-over-year basis, AirTran said traffic jumped 30.3% while capacity increased 22%, boosting load factor to 69.1%, up from last year's 69.1%. The company flew more than 972,000 passengers in November, which is a record. AirTran shares were down 10 cents, or 0.7%, to $14.50.

ExpressJet

(XJT)

, a regional carrier that flies as Continental Express and was once a unit of Continental, announced that traffic jumped 51.7% in November against a capacity increase of 36.4%, giving the carrier a load factor of 70.2%, a 7.1 percentage-point improvement from last year. ExpressJet was down 7 cents, or 0.4%, at $15.89.