Rising Tides

rising tides blog.jpgContinental’s May traffic statistics released yesterday unleashed what analysts seem to think is a wave of positive news about unit revenue improvement for US airlines.

United’s bride-to-be posted a whopping consolidated passenger revenue per available seat mile (PRASM) improvement of 23% to 24% compared with May 2009. While the signs are encouraging, carriers are coming off disastrous revenue declines for the same period last year. Continental’s consolidated PRASM in May 2009 fell 19.5% to 20.5%.

Still, analysts are encouraged by the improvement expected in May’s revenues. Continental’s May PRASM handily topped JP Morgan’s estimated rise of 17% and a general street estimate of 19%-20%.

CRT Capital Group predicts United and Southwest are expected to report the strongest year-over-year growth in each carrier’s history. The company expects a 25% hike in United’s unit revenue and a 17% rise at Southwest.

So what’s driving this improvement?  CRT cites a combination of a pick-up in underlying demand, some peak pricing power and a sharp break in oil prices.

But one month, or even a strong summer season, doesn’t guarantee reversed fortunes for carriers. No one has determined the exact ripple effects of the spooked markets in Europe, and if fuel will hold steady at lower levels.

Even as the latest revenue improvements spark hope, some fundamental truths about the airline industry remain, as recently laid out by Continental’s chief Jeff Smisek — “Running an airline is a tough business. We have low barriers to entry and high barriers to exit, resulting in a highly fragmented and brutally competitive business.”

photo credit — outdoors.webshots.com 



One Response to Rising Tides

  1. cabal gold 14 June, 2010 at 4:41 pm #

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