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Airlines surge most in a year as Delta points to fare rebound

[ATLANTA] US airlines jumped the most in a year after a Delta Air Lines Inc traffic report showed an increase in pricing power despite three major hurricanes and a continuing fare war.

Passenger revenue for each seat flown a mile rose about 2 per cent in the third quarter, Delta reported Tuesday. That matched the low end of a forecast the airline made early last month, meaning the benchmark gauge largely held up amid a challenging quarter.

The resilience of the financial measure, a proxy for pricing power, soothed investors anxious over the double whammy of the storms and a fare war that started this summer between United Continental Holdings Inc and Spirit Airlines Inc.

The pricing battle spread to other carriers shortly before Hurricanes Harvey, Irma and Maria slammed the southern US and Caribbean, shutting down major airports and forcing thousands of flight cancellations.

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Without Irma, "it would've been plus 3 per cent, which is pretty remarkable, considering the recent capacity spats between United and Spirit and all the hurricanes," said Paul Lambert, an analyst at Tocqueville Asset Management, which held about 627,000 Delta shares on June 30.

Delta advanced 6.3 per cent to US$51.11 at 3.02pm in New York after climbing 6.7 per cent for the biggest intraday gain since January 2015. A Standard and Poor's index of the five biggest US airlines rose as much as 5.4 per cent, the most since September 2016 and the biggest increase for any industry on the S&P 500 Index.

The Delta traffic report suggests that pricing battles haven't been as damaging as anticipated, said Savanthi Syth, an analyst at Raymond James Financial Inc. An abundance of cheap tickets, while a boon for travellers, can dent airlines' profitability.

"There was a fear that, as we head into the fourth quarter, things could get worse" and that the fare war could spread, she said.

"This is giving some people comfort that it's not getting worse."

Delta said Hurricane Irma cut pretax income by about US$120 million, decreasing the Atlanta-based airline's operating margin by a point to as low as 15.5 per cent. The carrier cancelled about 2,200 flights because of the storm, it said.