(Andrew Harrer/Bloomberg)
By Michael Oneal
| Shares of United Airlines parent UAL Corp. soared on Tuesday after the carrier wowed Wall Street with its February traffic report, providing hard evidence that a long, dismal revenue slump is ending for both United and the industry.
Although storm-related cancellations snarled traffic during the month and knocked an estimated $40 million off of total revenue, the carrier told an investor conference held by JPMorgan Chase that a slight increase in volume coupled with a sharp decrease in seat capacity drove unit revenue up around 18 percent — a sure sign of building health.
Previously battered airline stocks have been on fire for months amid
building signs that a revenue rebound might be in the offing as the
recession eases. At the close Tuesday, United shares had jumped almost
five-fold from their nadir last July, when its dwindling cash reserves
and a plunge in business travel heightened bankruptcy fears.
UAL Chief Financial Officer Kathryn Mikells told Wall Street analysts
that the carrier’s drastic capacity cuts both at home and abroad during
the downturn are starting to pay off handsomely as business traffic
slowly improves and other revenue streams build.
Premium international traffic spiked 25 percent in February, she said,
after a 28 percent jump the month before. Overall revenue from corporate
customers rose 13 percent.
Meanwhile, she said, ancillary revenue streams like baggage fees, “buy
on board” food and up-selling of premium seats and services at check-in
time, are adding $13.17 per passenger, up from $7.75 in 2007, the
highest level collected by a large U.S. carrier.
“We’re clearly seeing signs of economic recovery and premium and
corporate travelers returning,” Reuters quoted Mikells as saying. “The
return of higher quality traffic, combined with the significant
reductions in capacity that we undertook in 2009, has really begun to
improve our relative revenue results.”
Share prices across the industry have shot up steadily over the last
several months making some analysts wonder whether they might be due for
a pull back before long, especially if the economy continues to improve
in jarring fits and starts.
Jesup & Lamont analyst Helane Becker, told Dow Jones that bad
weather and higher year-over-year jet fuel prices could still produce
losses in the first quarter, delaying the budding recovery. That might
dampen the frothy enthusiasm airline shares are floating on at the
moment.
“We expect airline shares to come down, giving us a buying opportunity,”
she said.
