Airline Revenues to Take Off in 2010

The recovery in the global
economy is expected to benefit the airline industry with unit revenues slated
to rise in the second quarter of 2010. Rising fares, an improvement
in international traffic and an overall recovery is expected to drive this
growth. Last year’s economic downturn and the preceding year’s steep oil prices
had adversely affected the airline industry. We believe that this news will
have a positive impact on share price movements of airline companies in the
near future.


Airliner

Despite concerns about the recent rise in fuel prices,
recovery in business travel and cargo has accelerated along with gains in
international and domestic passenger revenue. Moreover, airline capacity is
also expected to improve in 2010.

Among all the major U.S. airlines, second-quarter 2010 unit
revenue of Delta Air Lines, the world’s largest airline, is expected
to increase by double digits. The company expects passenger revenue per
available seat mile (PRASM) to increase about 20% year-over-year and operating
margin to be in the range of 10.0% – 11.0%.

Delta Air Lines is uniquely positioned to benefit from its
merger with Northwest Airlines. The carrier has recently seen a surge in
business travel volumes and improved pricing, a trend which is expected to
continue. We are maintaining our long-term Outperform rating on Delta Air
Lines. The Zacks Consensus Estimate is currently pegged at 66 cents per share
for the second quarter, compared to a loss of 24 cents in the year-ago
quarter.

The low-cost carrier Southwest Airlines Co. anticipates
a significant increase in unit revenue growth and flat capacity in 2010. Given
its strong balance sheet, low costs, several revenue initiatives, and network
optimization, we believe the company has benefited in a difficult operating
environment and will continue to do so in the near future.

American Airlines, a wholly owned subsidiary of AMR Corp.,
expects its quarterly unit revenue, including regional aircraft, to grow by
16.5% – 17.5%. United Air Lines, a wholly owned subsidiary of UAL Corp., expects its
consolidated unit revenue to increase by 26.0% – 27.0% for the second quarter.
The carrier plans to merge with Continental Airlines Inc. later
in the year to emerge as a world leader with enhanced capacity and improved
service.

Revenue from corporate travel on US Airways is
also improving and has leaped 50.0% from its last year’s low. We currently have
an Outperform recommendation on the stock.