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US airlines pack them in like sardines to cut costs

Updated: 2009-09-28 09:03
(China Daily)

ATLANTA/DALLAS: Delta Air Lines Inc, AMR Corp and UAL Corp have more than doubled in US trading since March as the travel slump starts to ease and bankruptcy concerns abate. The outlook for passengers isn't as bright.

US airlines are packing domestic planes more full, paring service from cities such as St. Louis by more than two-thirds and charging $50 to check a second bag on some overseas routes. That adds to the squeeze on fliers who began paying luggage fees as jet fuel soared to a record last year.

"You'd think now would be the time they'd try to improve the experience of business travelers who are paying the bills, but they're not," said Alan Randolph, 41, who flies almost weekly as executive vice president at Bank of Miami in Coral Gables, Florida.

As consumers such as Randolph complain about "lots of elbow bumping" on crowded jets, investors see reason for hope. The Bloomberg US Airlines Index has outperformed the Standard & Poor's 500 Index by 2-to-1 after a March 5 low as carriers chop flying and impose levies for services that once were free.

Industrywide bag fees more than tripled to $669.6 million in the second quarter from a year earlier, when AMR's American Airlines led most major carriers in adopting the charges on the first piece of checked luggage.

"Passengers just swallowed these fees with barely a whimper, and they're not going away," said Michael Boyd, president of aviation consulting firm Boyd Group in Evergreen, Colorado. "Why leave money on the table when people will pay you?"

Southwest Airlines Co, the Dallas-based discounter that has shunned bag fees, added a $10 early check-in option so passengers can board first and choose preferred seats. Southwest is the only major US carrier that doesn't assign seats.

"There's no freebies," said Don Hodges, chairman of Hodges Capital Management Inc in Dallas, who said he owns stakes in Southwest, Delta and Continental Airlines Inc. "It may be a bit painful for consumers, but in the long run, if the industry survives and prospers, the consumer ultimately will be better off."

AMR has led gains from March 5 among major carriers in the 12-airline Bloomberg index, jumping more than threefold. Chicago-based UAL, the parent of United Airlines, more than doubled, as did Delta, the world's largest carrier.

Ratings boost

Kevin Crissey, a UBS AG analyst, raised his ratings to "buy" from "neutral" on AMR, UAL, Continental, US Airways Group Inc and Alaska Air Group Inc, citing an improved outlook for the shares, lowered bankruptcy risk and a "modest" improvement in demand and unit revenue.

"Now that bankruptcies in 2009 look unlikely, we believe the stocks will appeal to a broader investor base," Crissey said in a note to investors.

Analysts' buy ratings outnumber holds and sells for three companies, Delta, UAL and Continental, among the six biggest US airlines, based on data compiled by Bloomberg. Rounding out that group are AMR, whose American is No 2 in the world by traffic after Delta, Southwest and US Airways.

Bloomberg News

(China Daily 09/28/2009 page11)

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