Tuesday, June 15, 2010

U.S. Airline Recovery Quickens

U.S. airline executives said recovery in business travel has accelerated alongside gains in international and domestic passenger revenue, bucking lingering concerns about higher fuel prices.

The improvement in sector fortunes also is seen as more sustainable than after previous downturns, as even low-cost carriers like Southwest Airlines Co. have slowed expansion plans.
"Corporate revenues are driving a considerable amount of the improvement," said
Ed Bastian, president of Delta Air Lines Inc., the country's largest carrier by traffic.

Mr. Bastian said at an industry conference Tuesday that revenue from corporate sales was up 63% year to year through May 31, and continued to strengthen. Revenue per passenger mile on flights to Asia rose 50% in June, and was up 30% on trans-Atlantic services, he said.

Delta, meanwhile, boosted its estimate for second-quarter operating margin to 10% to 11%, from an April forecast of 8% to 10%.

Passengers boarding a United Airlines flight at Denver's airport last month. Airline executives say the industry's fortunes are improving.

Most major U.S. carriers forecast double-digit-percentage gains in their average passenger revenue for the second quarter, helped by more corporate travel after the unprecedented declines of as much as 40% seen a year ago. The revenue picture has strengthened through the quarter, with United Airlines' parent UAL Corp. leading the industry with a forecast for an increase of 26% to 27% in the three months to June 30 from a year earlier.

"We're also seeing corporations beginning to allow their employees to travel in the premium cabins," said Gerard Arpey, chairman and chief executive of American Airlines parent AMR Corp.

Some executives, however, remain cautious despite the positive trends. "Business travel, although it's improving, is still nowhere close to fully recovered," said Southwest Airlines' treasurer, Laura Wright.

Southwest and other carriers also expect to receive an increase from gaining passengers of Spirit Airlines Inc., which canceled all of its flights through Thursday amid a pilots' strike that started last Friday.

While returning passengers are bolstering airline cash balances, executives also remain wary of regulatory intervention.

United Airlines and merger partner Continental Airlines Inc. plan to respond to a request for more information from competition authorities early next month.

Kathryn Mikells, chief financial officer of UAL, said at the conference that the absence of joint labor contracts wasn't a barrier to a combination that would surpass Delta as the world's largest carrier.

Ms. Mikells and Jeff Smisek, Continental's chairman and CEO, reiterated at the conferencethat they saw no competition issues after the Department of Justice made a second request for information on the proposed deal last week.

Continental and United announced a merger plan last month that has split lawmakers on Capitol Hill, with the House subcommittee on aviation holding a hearing Wednesday into the potential effect of the deal on consumers and competition.

Write to Doug Cameron at doug.cameron@dowjones.com

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