Why JPMorgan Is Bullish On Airlines


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Updated guidance from major airline players suggests softer second quarter revenues, yet JPMorgan is bullish.Here are some key points from a new note out today:

  • The airline industry had $8 billion of annualized fuel cost savings. The softer demand is expected to barely register with the huge savings. July is expected to be a better month than June for the industry as demand continues to bounce around. Demand is likely to wane but not plummet.
  • The industry seems to be managing itself better given widespread consolidation, limited new entrant activity. Management is now focused on profitability and fixing balance sheets.
  • United Airlines said softer demand would hurt its revenue per available seat mile (RASM). The higher the RASM the more profitable an airline.
  • AMR Corporation also expected softer revenue and higher costs (both including and excluding fuel). The benefits of AMR’s transatlantic joint venture are being offset by other problems within the company but it is expected to be profitable in 2012.
  • Delta’s Q2 RASM is in line with JP Morgan’s 10.2% forecast. Delta’s guidance will be hit by the company’s decisions as opposed to market factors like the price of oil.

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