Higher fares and higher fees may soon greet U.S. airline customers, as some industry experts cautiously predict increases in demand that could slowly recover from the last two years of economic turmoil.
Already, fares are +20% higher than from last year – and that’s based on relatively low demand for flights. The Air Transport Association (ATA) said Thursday that 1% fewer passengers traveled the biggest domestic carriers in July, traditionally one of the biggest months for the industry. But since many consumers passed up on fall and winter holiday travel last year, experts and airline industries are betting on demand going up this time around.
Would-be travelers remain cautious about spending because of the recent signs of economic instability, and for the moment, airlines are opting for the “wait and see” approach, gauging Labor Day’s travel as a barometer for how the fall could play out. Travel demand has fallen sharply since late 2007, and the U.S. airline industry has had to respond by better managing capacity and launching new fees make up lost revenue. Overall, it’s still an uncertain market for the industry.
But lately, there are signs of a turnaround. July’s numbers from U.S. airlines prove that carriers are seeing higher traffic. On average planes are at nearly 90% of capacity. Some airlines say business travel is increasing as well.
Still, there is likely to be a lull before times get better for stocks, as late summer/early fall is traditionally a time when airline stocks weaken. That’s not a good sign for some picks that are already struggling. American Airlines parent, AMR Corp (NYSE: AMR), are down -22% year to date as of this writing. AMR reported a $10.7 million loss in its second quarter earnings report. Delta (NYSE: DAL) has been doing poorly as well. The stock has lost -8% during the past month alone, trading below its 50-day and 200-day moving averages. DAL stock is in the red -14% year-to-date in 2010.
Still, it’s not all gloom and doom in the airline biz. US Airways Group (NYSE: LCC) has returned to profitability in its last earnings report and its stock has boomed so far this year. US Airways reported Wednesday its second-highest quarterly profit since its 2005 merger with America West, confidently projecting profit for the rest of the year. The airline, with its largest hub at Charlotte/Douglas International Airport, beat analyst expectations with a $279 million profit (an 8.8% profit margin) in the second quarter of 2010, or $1.41 per share. Shares are up a stunning +76% year-to-date.
And however you slice it, U.S. airlines are doing exceedingly better than European airlines, which took a hit because of Iceland’s flight-altering volcano eruption. The International Air Transport Association projects that European airlines will lose an estimated $2.8 billion in 2010, while U.S. carriers will earn $1.9 billion in profits.
If, as some industry insiders predict, travelers begin packing their bags again when the fall and winter holiday seasons roll around, it could be good news for not only the industry, but investors. If the lower-performing stocks are going to take flight, consumers will have to as well.
As of this writing, Burke Speaker did not own a position in any of the stocks named here.
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