Majestic Research

MarketWatch

Airline stocks dip with international premium travel

By Christopher Hinton
Published: November 17, 2009

Fight for business passengers heats up with latest United, Continental offerings

NEW YORK (MarketWatch)—Airline stocks declined Tuesday after an industry trade group said the erosion in international premium-traveler numbers accelerated in September.

The NYSE Arca Airline Index (INDEX:XAL) fell a fraction to 26.99 with all but five of its 13 components in the red. In the last 52 weeks, the benchmark index has moved in a range of 30.95 to 12.62 points.  Shares of United parent UAL Corp. (NASDAQ:UAUA) fell nearly 1% to $7.46, Delta (NYSE:DAL) decline about 1% to $7.91 and American parent AMR Corp.(NYSE:AMR) fell 1% to $5.97.  Trading up were U.S.-listed shares of Gol Linhas (NYSE:GOL) and Tam Sa (NYSE:TAM) , along with Alaska Air Group (NYSE:ALK) , JetBlue Airways(NASDAQ:JBLU) and SkyWest (NASDAQ:SKYW) .

On Tuesday, the International Air Transport Association said premium-paying passenger numbers fell 13.9% from a year ago for September, compared to a 12% decline in August.

“It was notable that both world trade and consumer confidence in the U.S. dipped in recent months, which may well have driven the fall in passenger numbers seen in September,” the industry trade group said in a statement. “Most analysis of these wider economic developments suggest they are temporary setbacks in an improving economic recovery.”

Premium tickets are mostly purchased by business travelers, who have been absent most of this year as corporations reduced spending in the wake of the recession. The industry is anxious for their return as their absence depressed average ticket sales and contributed to significant industry losses.

Year to date, premium travel numbers are down about 19% compared to the same period last year, according to IATA. Economy travel, which represents more than 90% of those traveling, is off 3.8%.

“By the end of the year this decline should be a little smaller, so long as growth resumes during the fourth quarter,” the group said.

Airlines and Wall Street have warned that recovery could be choppy, with most looking to mid-2010 before industry profit returns.

"We continue to believe that trends for business travelers have remained relatively weaker than leisure trends, which could make a more substantial near-term recovery more challenging,” said majestic Research analyst Matthew Jacob.

To beat out rivals for the fewer business travelers out there, some carriers are offering more frequent-flier perks. On Tuesday, Continental and United said that beginning in mid-2010, customers who have reached elite status will now receive unlimited, complimentary domestic upgrades on their flights when space is available.

“The partnership between United and Continental means more comfort and better rewards for our most loyal customers,” said Graham Atkinson, president of United’s Mileage Plus.

Elsewhere, the Dow Jones Industrial Average (INDEX:INDU) fell about 6 points to 10,401, while crude oil for December delivery fell 28 cents, or 0.3%, to $78.64 a barrel in electronic trade.

Airlines continue to raise and hold cash to weather the downturn.

Late Monday, UAL priced $810 million in pass-through securities to repay debt and general corporate purposes.

A pass-through security is a fixed-income certificate pledged against certain assets, generally aircraft. It allows the carrier to turn their assets into cash.

In a government filing, the Chicago airline said it will pay off $493 million in outstanding debt related to an outstanding 2000-2002 equipment trust certificate.

Horizon Airlines, a unit of Alaska Air Group (NYSE:ALK) , has said it reached a tentative two-year labor agreement with its 584 flight attendants.

Members of the Association of Flight Attendants will soon vote on the new agreement, which could be ratified by as early as Dec. 21, the carrier said.

Britain’s easyJet reported a 14% profit fall in its most recent fiscal year and warned of a difficult winter.