Airlines Soar Into Second-Quarter Profits

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 worlds 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.

We are maintaining our Neutral rating on Southwest Airlines. The
Zacks Consensus Estimate presently stands at 28 cents per share for the second
quarter compared with earnings of 8 cents in the year-ago quarter.

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.