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Weak Revenue Figures Set Airlines Up for Some Choppiness

April's industry data come in even worse than expected.

Don't look now, but I think those steadily climbing airline stocks are about to hit some turbulence.

I'm not talking about the usual "buy in December, sell in May" trend, wherein traders load up on airline stocks in the winter and shed them before heading to the Hamptons for the summer.

No, I'm talking about the

Air Transport Association's

dismal industry revenue data for April, released late yesterday. While I wasn't expecting strongly positive news, the actual numbers on revenue per available seat mile were much worse than I expected.

As a result, the big airline stocks were off sharply at midday:


(UAL) - Get United Airlines Holdings, Inc. Report

was off 5 1/2, or 6.8%, at 75 1/16;



was off 2 13/16, or 3.9%, at 68 1/2;


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

was off 4 5/16, or 6.7%, at 60 3/8;


(CAL) - Get Caleres, Inc. Report

was off 2 7/8, or 6.3%, at 42 11/16;


(LUV) - Get Southwest Airlines Co. Report

was off 1 1/8, or 3.3%, at 32 15/16;



was off 3/16, or 3.5%, at 5 1/4;

America West


was off 9/16, or 2.8%, at 19 13/16;



was off 1 5/16, or 3.8%, at 33 1/16; and

US Airways

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was off 2 3/4, or 5%, at 52 1/8.

Domestic unit revenue fell 3% for the month, adding to March's 0.7% decline and well below what most analysts predicted. Sam Buttrick, an airline analyst with


, said in a research note last week that he was looking for a decline of around 2% for the month. That forecast was scaled back from his initial forecast of a decline of 1% to 1.5%. You get the picture.

In another note penned this morning, Buttrick estimated that high-yield business revenue for the major airlines fell 2% for the month, reversing March's 1.7% increase. Yikes. Average unrestricted yields (revenue generated by those expensive walk-up fares that business travelers hate and airline investors love) dropped 3% for the month, the largest drop in many months.

Based on his data, Buttrick said, Delta, Continental, Southwest and TWA outperformed the industry last month in terms of unit revenue. The


unit of AMR, the


unit of UAL, America West, Northwest and US Airways all underperformed it.

And if the April revenue figures weren't bad enough, the preliminary May numbers don't look so hot either.

Translation? The industry has a great deal of domestic capacity coming online this year, with the bulk of it still in the wings. In addition, these domestic capacity increases are hitting international capacity increases head on. Many foreign carriers such as

British Airways

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have shifted capacity from fare-pressured Asian routes to trans-Atlantic routes, thus putting more pressure on airlines like United and American.

The overall effect of all this new metal in the sky? Increasing fare pressure.

In addition, I think there is an argument to be made that more and more companies are beginning to consider paring down expensive walk-up fares for business travel.

As I have said before, the airlines have always tended to operate under the assumption that they can continue to raise business fares whenever revenue growth starts to flag.

But I suspect the airlines have now reached the point at which the demand curve has snapped -- or at least the point at which it's not stretching like it did before.

Look for analysts to start cutting second-quarter earnings estimates as a result of April revenue figures.

Frontier Hits New 52-Week High

As the major airlines suffer from capacity angst and revenue shortfalls, there are small rays of light in the airline wind tunnel of profits.



, one of my favorite airline stocks going into this year, hit a 52-week high yesterday, closing at 13 3/4. The stock had gained 166% on the year through last Friday, and I think -- industry capacity and fare issues notwithstanding -- the airline's on track to post another very respectable quarter. Wednesday the stock was off 1/16 to 13 11/16.

Bye-Bye LUV

I sold my shares of Southwest last week at 34 1/2, eager to post a substantial profit on shares I had held for a very long time. Does this mean I'm seeing major problems with the airline? Heavens no. It's just an overall feeling that the industry has topped out for the time being.

Holly Hegeman, based in Dallas, pilots the Wing Tips column for At time of publication, Hegeman held no positions in stocks discussed in this column, although holdings 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 While she cannot provide investment advice or recommendations, she welcomes your feedback at