U.S. airlines recorded unexpectedly strong passenger traffic in September, leading some on Wall Street to raise third-quarter earnings estimates, industry analysts said Tuesday.
In the first half of the year, airline earnings rose on higher air fares and modest traffic gains. Traffic continued to grow slowly in July and August and leaped up in the usually slow travel month of September, allowing carriers to avoid fare wars.
“It’s surprising because traffic is holding up much better than expected,” said Jim Vail of Eberstadt Fleming.
“The third quarter looks very strong,” said Vail, noting that he raised estimates for UAL Corp., parent of United Airlines, and AMR Corp., American Airlines’ parent, last week.
Growth May Continue
Vail said advance bookings look good, indicating traffic growth may continue through year-end.
“Frankly, the third quarter probably holds more upside surprises than downside because of the strength of September traffic,” said Tim Pettee of Bear, Stearns & Co.
Analyst Michael Derchin of Drexel Burnham Lambert Inc. had similar sentiments: “The bias is basically upward. The third quarter’s coming in very strong. Traffic is stronger than planned.”
Vail said he raised his quarterly earnings forecast for UAL to $7.00 to $7.50 a share from $6.70. He projected AMR would earn $2.25 to $2.50 in the quarter, up from $2.20.
Passenger traffic at major carriers rose 7% in September from a year ago, compared to growth of 4% to 5% in prior months, said Bear Stearns’ Pettee.
And fares, which have jumped an average of 10% this year, continue to climb. Last week major carriers raised their lowest discount fares by $20 a round trip, another sign that traffic remains robust.