U.S. airlines, set to start reporting quarterly losses next week, are likely to offer more evidence of returning business travel demand as the industry gropes its way out of the 2009 economic recession.
Of the six-largest U.S. carriers, only Southwest Airlines
Relatively low fares are behind the expected fourth-quarter performance, but analysts are hopeful that 2010 will be a year of recovery.
Everyone is getting better, and they're doing the best they can with the hand they've been dealt, said Morningstar airline analyst Basili Alukos. He said, however, that the strain of the recession will be evident in the results.
Lower fares had been a feature of the year. We were in a recession, so we need people to come back to fly so they've been lowering prices, Alukos said.
The airline industry suffered in 2009 from a lack of demand for business travel as companies trimmed travel budgets to hold down costs. But airline executives say they saw signs of recovery in travel demand on the business side in the quarter.
The Arca airline index <.XAL> rose 17 percent in the fourth quarter.
Analysts expect AMR to have lost $1.19 per share in the fourth quarter, according to Thomson Reuters I/B/E/S. Continental is expected to lose 10 cents per share. Southwest is expected to earn 6 cents per share.
According to StarMine SmartEstimates, which puts more weight on recent forecasts by top-rated analysts, AMR is expected to lose $1.20 per share. Continental is expected to lose 2 cents per share, Starmine says. The Starmine estimate for Southwest matches that of Thomson Reuters I/B/E/S.
Monthly data from U.S. carriers on traffic capacity and loads were mixed in December, with some carriers reporting high passenger volume and planes that averaged about 80 percent full. Load factors were high thanks to capacity cuts in 2008 and 2009 year by airlines struggling against volatile fuel costs.
Airlines also have benefited from a series of new fees for products and services sold to passengers at the airport or during flights. Just this month, airlines like United, Delta and Continental raised their unpopular bag-check fees.
While carriers are seeing some traction on recent fare increases, experts advise them to restrain growth.
Hopefully carriers will indicate that even though revenue trends are improving, there is still a pretty limited appetite for new growth at this point, said Hunter Keay, airline analyst at Stifel Nicolaus.
The last thing investors want to see is (capacity) growth at this point in time given that pricing is still relatively fragile, he said.
Meanwhile, airlines battled rising fuel costs in the fourth quarter. The price of crude oil, which directly influences the cost of jet fuel, rose about 12 percent from October through December and extended the rally in January.
We are cautiously optimistic on the airline space entering 2010 particularly following generally strong (passenger revenue) results from many U.S. airlines in December, said Keay in a January 11 research note.
However, we believe investors should remain focused on key risks to the recovery given the fragility of pricing, the still uncertain outlook into latter 2010, and the industry's mixed track record of capacity discipline, he said.
(Reporting by Kyle Peterson; Editing by Tim Dobbyn)