Revenue Data Lifts American Air Parent - TheStreet

A strong revenue report from

American Airlines'




prompted investors to scoop up shares Wednesday. It also encouraged Wall Street analysts to raise estimates on the company and one to slap a buy rating on the stock.

The world's largest airline company said late Tuesday that first-quarter unit revenue likely will increase 2.9% to 3.9% from a year ago. Excluding smaller, regional flights, the figure is even better -- up 3.5% to 4.5%.

Shares were up 89 cents, or 9.0%, at $10.82.

Analysts, who rejiggered earnings estimates for the company after the announcement, said AMR's improving revenue demonstrates the airline is benefiting from reduced capacity on transcontinental routes, wresting share from low-cost rivals in some markets and gaining from rival

Delta Air Lines'

(DAL) - Get Report

dismantling of a Dallas/Fort Worth hub.

"We think American is seeing better-than-expected revenue performance in its core Dallas/Fort Worth markets as the airline benefits from Delta's 'dehubbing' of its Dallas operation," wrote Merrill Lynch analyst Michael Linenberg in a research note explaining his upgrade of AMR to buy. "Delta's departure from Dallas/Fort Worth also means that American is less exposed to the revenue dilution brought on by Delta's simplified fare structure." (Merrill Lynch does and seeks to do business with companies covered in its research reports.)

Linenberg now expects AMR will lose $1.25 a share in the first quarter, vs. his earlier loss forecast of $3.15 a share. His full-year loss forecast goes to $4.95 a share from $7.50.

AMR's increases would compare favorably with recent figures from the Air Transport Association, which tallies monthly unit revenue at the top eight U.S. carriers. The ATA said unit revenue was up 0.9% in January and down 1.6% in February.

Airline revenue has been under pressure as the industry continues to suffer from a glut of overcapacity and tough competition from low-cost carriers. Delta's recent fare restructuring has had a negative impact on some airlines, notably


(CAL) - Get Report

, which has said revenue could suffer by $200 million a year. At the same time, the industry is struggling with high fuel costs, although three rounds of fare increases in recent weeks have allowed carriers to pass some of those costs on to passengers.

Goldman Sachs analyst Glenn Engel believes AMR's biggest gains are coming from other airlines' capacity reductions on transcontinental routes and from Delta's Dallas retreat. But cutbacks by



, AMR and

United Airlines'




may also be reducing fare pressure in Chicago, he wrote in a research note. "Finally, both Chicago O'Hare and Miami are benefiting from the adoption of a more simplified fare structure, which is shifting share back from competing airports, Chicago Midway and Ft. Lauderdale," he added. (Goldman Sachs does and seeks to do business with companies covered in its research reports.)

The Midway and Ft. Lauderdale airports are strongholds for low-cost carriers

Southwest Airlines

(LUV) - Get Report


JetBlue Airways


, respectively.

In its announcement Tuesday, AMR reiterated mainline unit cost guidance of 10.0 cents and consolidated guidance of 10.5 cents. Airlines measure unit costs in cost per available seat mile, or CASM. During the first quarter, AMR hedged 15% of its fuel consumption needs in the first quarter at a price of $40 a barrel, significantly below crude's recent levels around $55 a barrel. The airline expects to end the first quarter with cash and short-term investments "well over" $3 billion, including $500 million in restricted cash and short-term investments.