Airline stocks were met with some fairly heavy selling pressure last Friday, as United Continental (UAL) spooked the analyst community with some pretty disappointing passenger revenue per available seat mile (PRASM) guidance for its second quarter (ending June).
Let's dive into the recent trends in this key measure for United Continental:
May 6: United Continental Holdings Reports April 2011 Operational Performance for United and Continental
United and Continental's April 2011 combined consolidated passenger revenue per available seat mile (PRASM) increased an estimated 8.0 to 9.0 percent compared to the pro forma results from April 2010, while combined mainline PRASM in April 2011 increased an estimated 8.0 to 9.0 percent compared to the pro forma results from the same period last year.
June 7: United Continental Holdings Reports May 2011 Operational Performance for United and Continental
United and Continental's May 2011 combined consolidated and mainline passenger revenue per available seat mile (PRASM) each increased an estimated 14.0 to 15.0 percent compared to the pro forma results from May 2010.
June 23: United Continental Holdings Investor Update
Second quarter consolidated Passenger Revenue per ASM (PRASM) is expected to grow between 8.3% and 9.3% year-over-year .... Second quarter demand continues to develop in line with the Company's expectation of a slow, steady recovery.
What Does This Guidance Imply For June?
On a consolidated basis, the metric for United Continental was solid in both April and May, increasing 8-9% and 14-15%, respectively. But with full second-quarter guidance of 8.3-9.3% (which includes April and May), PRASM for June must have been in the 3-4% range, a sharp correction from May's results. Though one month a trend does not make, we continue to watch the domestic industry landscape -- AMR Corp. (AMR), Delta (DAL), and US Airways (LCC), etc. -- for additional data points that may speak to revenue weakness continuing into the third quarter. In all, however, our thesis on the industry remains unchanged, and we continue to believe that long-term investors should steer clear of airline stocks.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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