Stocks for airlines rise on passenger traffic

American Airlines Group Inc. reported a 1 percent increase in June passenger traffic over a year ago.
American Airlines Group Inc. reported a 1 percent increase in June passenger traffic over a year ago. (ANDREW HARRER / Bloomberg)
Posted: July 11, 2014

Airline stocks ticked higher Wednesday after American Airlines Group and Southwest Airlines reported higher June passenger traffic.

American, the world's largest airline after merging with US Airways, said its second-quarter pretax margin would exceed its earlier forecast.

The improved margin projection is 12 percent to 13 percent, compared with 10 percent to 12 percent previously. US Airways and American operate a hub and more than 75 percent of the flights at Philadelphia International Airport.

The earnings preview helped boost other airline stocks, including Delta Air Lines, which had fallen in the last week after Air France-KLM announced 2014 profits could be lower because of excess capacity and lower prices in its passenger and cargo divisions.

Lufthansa AG issued a profit warning in June, citing rising competition from Middle East carriers.

American CEO Doug Parker told reporters in Fort Worth this week: "We're happy with the demand we are seeing for the product throughout the world."

"The airline is doing very well," Parker added.

"American remains one of our top picks in the sector," said analyst Bob McAdoo at Imperial Capital L.L.C. in a client note. "We expect the new management team to continue to make structural changes, which should extend earnings upside beyond the benefits of traditional merger synergies."

Analyst Helane Becker at Cowen & Co. said in an update: "Overall, the guidance was solid and provides further evidence that 2Q was a very strong quarter for the airlines."

American said passenger traffic rose 1 percent in June.

Second-quarter passenger revenue for each seat-mile flown, a key industry measure, rose 5.5 percent to 6.5 percent compared with an earlier 5.5 percent to 7 percent estimate when American announced May traffic results.

The load factor, or percentage of seats filled by paying passengers, fell to 85 percent in June, compared with 86.9 percent in June 2013.

The decline was primarily on American's international routes, where the number of seats occupied per plane fell from 85.9 percent in June 2013 to 80.9 percent last month.

American expects to post a $330 million noncash tax charge in the second quarter related to selling its fuel-hedging contracts, and $250 million to $300 million in special charges related to its bankruptcy restructuring and merger.

"We highlight potential pricing risk stemming from supply growth in the international markets," said Goldman Sachs & Co. analyst Tom Kim in a note. American's international traffic rose 2.5 percent in the first six months, but "did not keep pace" with the 6.4 percent increased capacity overall, Kim said.

Southwest Airlines said Wednesday passenger traffic rose 2.2 percent in June. The carrier said unit revenue, or passenger revenue for each seat-mile flown, was up 7 percent to 8 percent in June from a year ago. The company said 86.1 percent of its seats were filled with passengers last month, compared to 85 percent in June 2013.

American shares closed up 4.28 percent to $41.99. Southwest gained 1.91 percent to $27.21, and Delta increased 1.43 percent to $36.96.


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