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‘It's tough out there’: Airline traffic falls again

Airline traffic fell again in June, providing another sign that most carriers are likely to report large financial losses for the second quarter.
/ Source: The Associated Press

Airline traffic fell again in June, providing another sign that most carriers are likely to report large financial losses for the second quarter.

A downturn in business travel has robbed the airlines of their best customers. They've compensated by cutting prices to attract leisure travelers, but the math just doesn't work out.

One by one over the past few days, all the major U.S. carriers reported June results, and several reported double-digit declines in key financial measurements.

"You are going to see some pretty ugly earnings numbers from the airlines for the second quarter," said Stifel Nicolaus & Co. analyst Hunter Keay. "Everybody is in the same boat on demand and pricing. It's tough out there."

All the leading U.S. airlines reported that June traffic fell compared with the same month last year. The average drop at the biggest eight companies was 6.1 percent.

The sharpest declines were at AMR Corp.'s American Airlines and American Eagle, off a combined 7.9 percent; and UAL Corp.'s United Airlines and its regional affiliates, down a combined 7.5 percent.

Airlines measure traffic in miles flown by paying customers, a figure that doesn't take into account how much the passengers paid for their tickets.

But other statistics do consider price, and they are telling a sad story for the airlines.

Continental Airlines Inc. and US Airways each said that unit revenue — sales per available seats times miles flown; a closely watched measurement of financial performance in the industry — fell about 20 percent from June 2008.

"These declines in unit revenues are driven by weaker demand for business travel and lower leisure yields as a result of the global economic recession," said Scott Kirby, president of Tempe, Ariz.-based US Airways.

American, the nation's No. 2 airline operator behind Delta Air Lines Inc., said in a regulatory filing last month that second-quarter unit revenue would be down by 16 percent to 17 percent for the entire second quarter.

Southwest Airlines Co. said unit revenue in June fell 9 or 10 percent.

"Ten percent in the old days would be a disaster," said Michael Derchin, an analyst for FTN Equity Capital Markets, "but now it looks pretty good."

Derchin said Southwest, JetBlue Airways Corp. and AirTran appeared to be holding up better financially than bigger rivals because consumers think of them first when looking for cheap fares, and because their domestic networks are insulated from the plunge in international travel.

U.S. airlines pushed through two fare increases in June, which Derchin said could lead to better unit revenue in July and August.

On the other hand, Southwest, AirTran and Frontier offered a new round of cheap flights this week, many under $100, extending in some cases into January. The sale prices were available for only a few days, and it was not clear how many seats those airlines were offering at the rock-bottom prices — "not many, is my guess," Derchin said.

June's traffic numbers, as bad as they were, were slightly better than May's at six of the eight largest U.S. airline companies.

Analysts said that wasn't enough to call a trend — traffic declined more slowly in April after a horrendous March, which raised hopes that a travel recovery was under way. Those hopes were dashed in May.