U.S. Airlines Signal Solid Demand Ahead of Earnings


American Airlines Group (NASDAQ:AAL), Southwest Airlines (NYSE:LUV) and United Continental Holdings (NYSE:UAL) on Wednesday cited growth in an important revenue measure during the second quarter, signaling that demand for air travel is solid during the summer.

Unit revenue, also known as passenger revenue per available seat mile, is expected to grow between 5.5 percent and 6.5 percent in the second quarter at American, while Southwest forecast a rise of more than 8 percent.

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United said better-than-expected results in the United States and Asia led its unit revenue to rise 3.5 percent in the period, compared with an earlier forecast of 1 percent to 3 percent growth. Unit revenue is a gauge of how full planes are and of pricing power.

Demand "is as strong as ever," said Bob McAdoo, an airline analyst with investment bank Imperial Capital, who noted a stronger-than-expected American outlook and said Southwest revenue results were up "meaningfully."

Some airline analysts raised their profit estimates for the second quarter, which typically includes some vacation travel.

American Airlines, formed in the late 2013 merger of AMR Corp and US Airways Group, said it expects pretax margin of 12 percent to 13 percent for the second quarter, up from an earlier view of 10 percent to 12 percent. UBS analyst Darryl Genovesi said in a note to clients that Southwest's revenue momentum could add 3 cents to his firm's profit estimate of 58 cents for the carrier.

American also said it could take charges of up to $630 million in the period. It cited a charge of about $330 million tied to the sale of its portfolio of fuel-hedge contracts and an added $250 million to $300 million in charges related to its merger and other items.

Recent profit warnings from European carriers such as Air France-KLM and Lufthansa had raised concern about demand trends, pummeling share prices.

Last week, Delta Air Lines said unit revenue for June grew less than it had forecast, citing lower business demand for travel to Latin America during the World Cup soccer tournament and capacity increases that hurt ticket prices. Delta said second quarter unit revenue likely rose 6 percent.

McAdoo said the European carriers faced issues that did not affect U.S. airlines as much, such as heavier competition from low-cost rivals.

Robert Mann, an airline consultant in Port Washington, New York, said the European airlines that are reporting weakness "are underperforming and as a result, they probably should look inwardly to solve the problem."

Shares of major U.S. airlines rose, with American Airlines ending up 4.3 percent at $41.99, Southwest finishing up 1.9 percent at $27.21 and Delta increasing 1.4 percent to $36.96. United, which issued its update after markets closed, rose 1.3 percent to $40.07.

(Reporting by Karen Jacobs in Atlanta; Editing by Bernadette Baum and Jonathan Oatis)