Airlines Notebook: The Importance of Yields

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Monthly traffic figures issued this week by the

Air Transport Association

show that the airlines continued to see increases in traffic for February. The ATA reported that

revenue passenger miles (traffic) increased 0.4% for the month while

available seat miles (capacity) increased 0.5%. These were not as strong as January's numbers, however, which showed revenue passenger miles increasing 0.4% on a capacity growth increase of 0.3%.

In the always entertaining and challenging game known as Airline Economics 101, you always like to see more miles flown than are added to the system.

As we talked about last week in our wrap-up

column on the

International Society of Transport Aircraft Trading

conference, industry consultant Edmund Greenslet put the responsibility for continued increases in earnings for the airline industry squarely in the lap of increased

yields. He sees both traffic and capacity being squeezed as we head deeper into 1998.

So, how is the sector doing in terms of yields? So far this year yields have been flat. January they were up 0.6%, and February they were down 0.5%. We also need to remember that this year the airlines are losing about 10% of their total passenger revenue to the feds as a result of the new and improved ticket tax that was not in effect at this time last year. So, when you look at it that way, they ain't doin' half bad. But in real terms -- 'cause we have to live with the tax now, like it or not -- the fact is, yields are flat.

Analyst Upgrades

Salomon Smith Barney

this week upped its first-quarter earnings estimates for four airlines --

American Airlines

(AMR)

,

America West

(AWA)

,

Continental

(CAIB)

and

Northwest

(NWAC)

.

And this morning,

BT Alex. Brown

started coverage on

Alaska Airlines

(ALK) - Get Report

,

Southwest

(LUV) - Get Report

and Northwest Airlines. Northwest was dubbed a strong buy, with Alaska Airlines and Southwest market performers.

Frontier Continues to Surge

Just a little update on the move we mentioned to you

Wednesday in shares of

Frontier Airlines

(FRNT)

. The stock has posted a 30% gain on the week, and is up again today on continued heavy volume. Hmmmm.

VIRGY, Ryanair and Ornstein Follow-Up

TSC

reader most-asked question from yesterday: Will Jonathan Ornstein be actively involved with

Virgin Express

(VIRGY)

?

Answer: According to Ornstein, yes. However, I think he has his work cut out for him at Mesa. I would say the "managing" with VIRGY will be much less labor-intensive than what will be required in New Mexico.

Interesting side note: Ornstein also said in an interview yesterday that VIRGY had gotten a "wake-up" call from

Ryanair's

(

(RYAAY) - Get Report

RYAAY ADR) successful move into Europe. He called upon Belgian officials to cut VIRGY some slack in terms of tax relief. Otherwise, he said VIRGY just might relocate to Ireland or Britain to "level the playing field" in terms of operational costs. Investors did not like the news that Ornstein was leaving the low-fare European carrier. Shares of VIRGY dropped 8.8% yesterday, while shares of Mesa were up 11.6%.

Speaking of the Irish carrier, shares of Ryanair have recaptured much of the ground they lost when the carrier's baggage handlers staged a strike at

Dublin Airport

earlier in the month. Shares are trading today around 37.

Holly Hegeman, based in Dallas, pilots the Wing Tips column for TheStreet.com. At the time of publication, she is long Southwest and Frontier. Under no circumstances does the information in this column represent a recommendation to buy or sell stock. You can usually find Holly, publisher of PlaneBusiness Banter, buzzing around her airline industry Web site at www.planebusiness.com. Holly welcomes your feedback at

hhegeman@planebusiness.com.