NEW YORK (CNNfn) - Airlines earnings forecasts, already under pressure, lost more altitude Tuesday as the latest traffic numbers came up short of even gloomy projections.|
"We were expecting weakness but it came even weaker than we feared," said Ray Neidl, analyst with ABN Amro. "The key thing is business traffic is way off."
Neidl was the most active analyst Tuesday, cutting earnings estimates for 7 of the nation's 9 largest airline holding companies, and reducing his recommendation on No. 4 Northwest Airlines (NWAC: Research, Estimates) to a "hold" rating from "add," as he said that its share price now stood at 9 times its revised 2002 earnings forecasts. But he said that he's cautious about investing in any of the mainline airlines at this point, given weakening traffic coupled with rising labor costs.
Earnings tracker First Call reported that four other airline analysts have cut earnings estimates so far this week. That comes on top of a trend that has seen estimates falling steadily over the past several months.
The latest traffic report for May was filed by Delta Air Lines (DAL: Research, Estimates), the nation's third-largest carrier. Its figures showed that the number of miles flown by paying passengers fell 8.9 percent during the month. The load factor, which reflects the percentage of seats filled with passengers on a per mile basis, fell to 70.2 percent, from 75.7 percent a year ago.
The Atlanta-based carrier has been hit with a pilots strike at Comair Inc., its feeder airline subsidiary that had been flying about half of the Delta Connection flights, primarily through Cincinnati or Orlando, Fla. Comair has been grounded since March 26, and its results are partly responsible for the airline's drop in traffic. But even excluding Comair's numbers, the mainline Delta saw traffic fall 6.9 percent in the month.
Delta wasn't the only carrier to see a decline. In fact, the four largest carriers saw miles flown by passengers decline compared with year-ago figures, while the eight largest carriers all saw a decrease in load factor, meaning that even those that posted a gain did so because they added more seats than they had passengers to fill them.
Overall, the industry's seven largest carriers – United Airlines, American Airlines, Delta, Northwest, Continental (CAL: Research, Estimates) , U.S. Airways (U: Research, Estimates) and Southwest Airlines (LUV: Research, Estimates) – saw miles flown by paying passengers fall 1.8 percent, while the load factor fell to 71 percent from 74.9 percent a year ago.
Many airline executives spoke to investors at a Merrill Lynch conference on Monday. Mike Linenberg, Merrill's airline analyst, described the outlook from executives as "sobering."
Donald Carty, CEO of AMR Corp. (AMR: up $0.45 to $38.16, Research, Estimates), the largest airline holding company operating both American Airlines and Trans World Airlines, said he thought the long-term prospects for the industry remains strong, but he conceded that current earnings and pricing environment is weak. And he said that some of the weakness that the airline has seen on its domestic traffic is starting to spread to international flights as well.
Linenberg was one of the analysts cutting forecasts Tuesday.
"Domestic revenue trends continue to deteriorate and principally reflect a significant reduction in the number of travelers flying on business-type fares," said Linenberg. "Additionally, airline travel has been on sale virtually every day since the beginning of the year."
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Still, Linenberg did not reduce his ratings on any of the stock's attractiveness, maintaining an accumulate rating on both UAL Corp. (UAL: Research, Estimates), owner of United Airlines, as well as AMR, even though he thinks that in the short term both stocks could see prices slip further.
"While we do think the downside in airline share prices in the very near-term, read three-to-six months, could be 5-to-10 percent, over the next 12 months, AMR and UAL could easily see upside of about 20 percent as the they start discounting a 2002 recovery," Linenberg said.