American With Southwest Sees Strong Start to Summer Travel

Jun 09, 2014 5:38 pm ET

(Updates with United information in sixth paragraph.)

June 9 (Bloomberg) -- American Airlines Group Inc. and Southwest Airlines Co. forecast a strong summer travel season, a pivotal period for the industry when vacationers join business fliers to pack planes to their fullest.

American said second-quarter revenue for each seat flown a mile, an indicator of traffic and fares, will exceed the projection it gave just last month. Southwest Chief Executive Officer Gary Kelly told employees today he expects “great” seasonal travel.

A pickup in air travel would bolster an industry rebound as airlines seek greater pricing power. The summer months are the busiest for U.S. carriers, with passenger traffic peaking in July, followed by August, then June, according to data compiled by Bloomberg. An Airfarewatchdog survey of 13,000 travelers found that 77 percent planned to fly on vacation this summer, compared with 15 percent who will drive.

“The U.S. domestic market continues to remain the driver of the overall strong demand” that should push pricing higher through the summer, Helane Becker, a Cowen & Co. analyst, said in a note to investors.

Delta Air Lines Inc., the third-biggest U.S. carrier behind American and United Continental Holdings Inc., reported June 3 that Prasm, an industry benchmark for traffic and fares, climbed 7 percent in May as load factor, or the average amount of seats filled per flight, rose 1.7 points to 86.5 percent.

United said today its May passenger traffic increased 1.2 percent and load factor gained 0.9 percent. The carrier didn’t comment on Prasm.

Spending Ease

Gains in the job market and wage growth may give some consumers the confidence this summer to book air travel and vacations they’ve deferred in the past. Employment in the U.S. reached a milestone last month as payrolls pushed past their pre-recession peak for the first time, while fewer firings are also helping put more Americans at ease about spending.

The Bloomberg U.S. Airlines Index has risen 40 percent this year, and 78 percent in 2013. That compares with a 5.6 percent gain year-to-date for the Standard & Poor’s 500 Index and 30 percent increase last year.

American, based in Fort Worth, Texas, said it expects passenger revenue this quarter for each seat flown a mile to rise 5 percent to 7 percent from a year ago, an increase over its May forecast of up 4 percent to 6 percent.

Southwest, based in Dallas, estimated May Prasm rose 8 percent to 9 percent from a year earlier and said load factor increased 1.8 points to 83.7 percent.

Strong Month

“We had another strong month,” Kelly told employees on a recorded message. “It was an all-time record load factor for the month of May and another strong revenue increase. We’ll be off to a great summer season. Really strong results for 2014 are continuing.”

May traffic reports prompted Joseph DeNardi, a Stifel Nicolaus & Co. analyst, to increase his 2014, 2015 and 2016 profit estimates for Delta and his 2015 and 2016 outlook for American’s profits.

(An earlier version of this story corrected the spelling of the brokerage firm.)

--With assistance from Victoria Stilwell in Washington.