Thursday July 1, 4:14 pm ET
NEW YORK, July 1 (Reuters) - Shares of larger airlines, also known as legacy carriers, will outperform those of low-fare carriers in the second half of 2004, reversing a three-year trend in the airline industry, a Goldman Sachs analyst said on Thursday.
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"The big airlines are losing less money. The smaller airlines are making less money," said Glenn Engel, airline analyst at Goldman Sachs. "They are closing the gap."
A faster-than-expected rebound in travel drove legacy carriers such as American Airlines, a unit of AMR Corp. (NYSE:AMR - News), and Continental Airlines (NYSE:CAL - News) to add capacity in the past year, after cutting back during the SARS epidemic and beginning of the Iraq war.
United Airlines (OTC BB:UALAQ.OB - News) is expected to expand its capacity by 5 to 6 percent this year, Engel said. "When an airline like United adds that kind of capacity, it's equal to creating an airline the size of Frontier," Engel said, referring to Denver-based low-cost carrier Frontier Airlines (NasdaqNM:FRNT - News).
Citing a key gauge of industry performance, Engel forecast a drop in second-quarter unit revenue, or revenue per available seat mile, for low-fare carriers, but a 4 percent rise in unit revenue at legacy airlines. Unit revenue at low-fare carriers rose 2 percent in the first quarter, compared to a 5 percent gain for legacy airlines, he said.
Engel also forecast a 1 to 2 percent rise in unit costs at low-fare airlines in the second quarter, which is seasonally the strongest period. He expects unit costs at larger airlines to fall 4 percent.
"Also, the larger airlines have a disproportionate exposure to international and business travel ... so they benefit more from a rebound in that area," Engel said.
However, Blaylock & Partners analyst Raymond Neidl said he expects no such reversal in the near future. "The legacy carriers are in big trouble. They have many things they need to overcome," he said.
"The low-cost carriers will continue to grab market share."
AMR shares slid 39 cents to end at $11.72 and Continental fell 39 cents to $10.98 on the New York Stock Exchange. JetBlue (NasdaqNM:JBLU - News) dropped 73 to $28.65 and Frontier Airlines edged down 17 cents to $10.71 on Nasdaq.
NEW YORK, July 1 (Reuters) - Shares of larger airlines, also known as legacy carriers, will outperform those of low-fare carriers in the second half of 2004, reversing a three-year trend in the airline industry, a Goldman Sachs analyst said on Thursday.
ADVERTISEMENT
click here
"The big airlines are losing less money. The smaller airlines are making less money," said Glenn Engel, airline analyst at Goldman Sachs. "They are closing the gap."
A faster-than-expected rebound in travel drove legacy carriers such as American Airlines, a unit of AMR Corp. (NYSE:AMR - News), and Continental Airlines (NYSE:CAL - News) to add capacity in the past year, after cutting back during the SARS epidemic and beginning of the Iraq war.
United Airlines (OTC BB:UALAQ.OB - News) is expected to expand its capacity by 5 to 6 percent this year, Engel said. "When an airline like United adds that kind of capacity, it's equal to creating an airline the size of Frontier," Engel said, referring to Denver-based low-cost carrier Frontier Airlines (NasdaqNM:FRNT - News).
Citing a key gauge of industry performance, Engel forecast a drop in second-quarter unit revenue, or revenue per available seat mile, for low-fare carriers, but a 4 percent rise in unit revenue at legacy airlines. Unit revenue at low-fare carriers rose 2 percent in the first quarter, compared to a 5 percent gain for legacy airlines, he said.
Engel also forecast a 1 to 2 percent rise in unit costs at low-fare airlines in the second quarter, which is seasonally the strongest period. He expects unit costs at larger airlines to fall 4 percent.
"Also, the larger airlines have a disproportionate exposure to international and business travel ... so they benefit more from a rebound in that area," Engel said.
However, Blaylock & Partners analyst Raymond Neidl said he expects no such reversal in the near future. "The legacy carriers are in big trouble. They have many things they need to overcome," he said.
"The low-cost carriers will continue to grab market share."
AMR shares slid 39 cents to end at $11.72 and Continental fell 39 cents to $10.98 on the New York Stock Exchange. JetBlue (NasdaqNM:JBLU - News) dropped 73 to $28.65 and Frontier Airlines edged down 17 cents to $10.71 on Nasdaq.
