Is Domestic Revenue Growth Still with Us?

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With capacity continuing to rise and pressure mounting on international passenger revenue streams, there is no doubt that the one thing fueling the current growth in profits in the airline industry is the continued growth in domestic revenue, or RASM.

The

Air Transport Association

released its monthly traffic information yesterday, and to say that the information needs to be sliced and diced carefully would be an understatement. The numbers are out of whack as a result of the Northwest Airlines

(NWAC)

strike. Needless to say, September's numbers are going to be really skewed, as Northwest did not fly some 20 days of the month.

This situation comes at a crucial time for industry number crunchers and tea-leaf readers, as RASM figures have held their own over the last few months, defying predictions of doom, gloom, or, at the least, decline. But because any decline in the industry RASM figures would be interpreted as an early-warning signal of an overall slowdown for the industry, the interpretation of these numbers is of much importance.

In terms of basic raw numbers, domestic revenue per available seat mile rose 4.1% in August. This compares to a 5.4% rise in July and a 4.5% rise in June. Sam Buttrick, an analyst with

PaineWebber

, thinks, however that to be fair, we should add an additional 0.3% for two reasons -- one, a later Labor Day than usual, and two, the Northwest strike. This, Buttrick feels, would then give us a 4.5% "core" RASM growth for August.

Domestic revenues for the major carriers in August were up 3.7% -- way below July's 5.6% figure. Again, Buttrick feels that if one accepts a "late Labor Day" adjustment and the NWAC strike, "core" revenue growth would probably be around 5.2% for the month.

The point here? Regardless of how you slice and dice the numbers, while domestic revenue numbers still look quite healthy, it does appear that we are seeing a period of moderation. Not a decline as of yet. Just a moderation. But Buttrick, for one, is very cautiously and with much trepidation forecasting core RASM growth (exclusive of any "Northwest effect") of only 2.3% for September, with revenue growth of around 3.7%. If his forecasts hold up, then the next question would be: How much of a deceleration are we looking at and for how long?

Remember, September's basic figures are going to be way off-base because of the Northwest effect. If there is a deceleration, it will be masked. We may have to wait until October's figures in November before the full effect of what is really going on shows up -- if, in fact, the numbers are about to take a more definite movement to the downside.

The other side effect of all this is that earnings for most major carriers are going to be positively affected by the strike, in particular

United Airlines

, a subsidiary of

UAL

(UAL) - Get Report

,

American Airlines

, a division of

AMR

(AMR)

,

Delta Air Lines

(DAL) - Get Report

,

US Airways

(U) - Get Report

,

Southwest Airlines

(LUV) - Get Report

and

Continental Airlines

(CAIB)

. We have already seen some upgrades on the airline stocks as a result, and we will no doubt see more in the next couple of weeks.

But, it should be clear that the only reason for these upgrades and the anticipated increase in earnings is the Northwest strike. If you take out the effect of the strike, then domestic revenues in fact seem to be flat, and original earnings estimates for the quarter would still be on track.

Whether domestic revenues are beginning to decelerate is not clear at this point -- if Buttrick is right, they already are - but we just won't be able to see this reflected in the raw numbers for another two months.

UAL President Update

As we had reported here on

Monday, UAL did indeed appoint James E. Goodwin as John Edwardson's successor as president of the airline on Tuesday. However, this appointment seems to be just a temporary measure. While Goodwin, a 32-year veteran of the airline, comes with glowing recommendations as an operations person, the airline has now made it clear that a full search is now underway for a successor to Edwardson. As most of you know, Chairman and CEO Gerald Greenwald intends to retire next year, so suddenly UAL finds itself in the position of bringing in a totally new upper-management team, as it appears there is no other heir apparent in the pipeline.

Air Canada Is Part of the Star Alliance

Shame on me! Thank you for all those emails. I did indeed forget to include Air Canada as a member of the Star Alliance in Monday's column. Not only is Air Canada a member but, as one reader pointed out to me, it's a

founding

member. My apologies to all our Air Canada fans. I assure you, it was nothing intentional.

Email Advisory

Because of some technical glitches involved with the moving of the server that houses my

PlaneBusiness.com

Web site, my usual email address, hhegeman@planebusiness.com has been out of service since earlier this week. For the time being, please use

hhegeman@nkn.net to send those cards, letters, brickbats and questions.

Holly Hegeman, based in Dallas, pilots the Wing Tips column for TheStreet.com

. At time of publication she was long Southwest, though positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. You can usually find Hegeman, publisher of PlaneBusiness Banter, buzzing around her airline industry Web site, at

www.planebusiness.com.