The recovery in the global economy is expected to benefit the airline industry with unit revenues slated to rise in the second quarter of 2010. Rising fares, an improvement in international traffic and an overall recovery is expected to drive this growth. Last year's economic downturn and the preceding year's steep oil prices had adversely affected the airline industry. We believe that this news will have a positive impact on share price movements of airline companies in the near future.
Despite concerns about the recent rise in fuel prices, recovery in business travel and cargo has accelerated along with gains in international and domestic passenger revenue. Moreover, airline capacity is also expected to improve in 2010.
Among all the major U.S. airlines, second-quarter 2010 unit revenue of Delta Air Lines, the world’s largest airline, is expected to increase by double digits. The company expects passenger revenue per available seat mile (PRASM) to increase about 20% year-over-year and operating margin to be in the range of 10.0% - 11.0%.
Delta Air Lines is uniquely positioned to benefit from its merger with Northwest Airlines. The carrier has recently seen a surge in business travel volumes and improved pricing, a trend which is expected to continue. We are maintaining our long-term Outperform rating on Delta Air Lines. The Zacks Consensus Estimate is currently pegged at 66 cents per share for the second quarter, compared to a loss of 24 cents in the year-ago quarter.
The low-cost carrier Southwest Airlines Co. anticipates a significant increase in unit revenue growth and flat capacity in 2010. Given its strong balance sheet, low costs, several revenue initiatives, and network optimization, we believe the company has benefited in a difficult operating environment and will continue to do so in the near future.
American Airlines, a wholly owned subsidiary of AMR Corp., expects its quarterly unit revenue, including regional aircraft, to grow by 16.5% - 17.5%. United Air Lines, a wholly owned subsidiary of UAL Corp., expects its consolidated unit revenue to increase by 26.0% - 27.0% for the second quarter. The carrier plans to merge with Continental Airlines Inc. later in the year to emerge as a world leader with enhanced capacity and improved service.
Revenue from corporate travel on US Airways is also improving and has leaped 50.0% from its last year’s low. We currently have an Outperform recommendation on the stock.
