Low-cost carrier AirTran Airways has cut its forecast for revenue growth in the third quarter due to softening travel demand related in part to security concerns.
The carrier, whose shares were down nearly 14 percent, predicted in a regulatory filing that growth in revenue per available seat mile would be in the low single digits in the third quarter compared with a year earlier. It previously forecast growth in the high single digits.
Chief Financial Officer Stan Gadek said in the filing that the carrier began seeing demand weaken near the end of August.
"This trend appears to be continuing into the month of September and likely resulted from the threat of recent terrorist events, tropical storm Ernesto, and capacity additions on the East Coast," Gadek said.
New airport security restrictions were issued after British authorities on August 10 said they had foiled a plot to blow up aircraft. Those restrictions, which include bans on liquids and gels in carry-on bags, have eroded demand for air travel, some experts say.
Gadek said AirTran plans to respond to the decline in demand by reducing its growth in 2007 and 2008. He said the carrier would announce changes in capacity -- the number of seats it puts up for sale -- at a later date.
In July, Gadek said the carrier planned to increase capacity by 27 percent in the third quarter, by 24 percent in the fourth quarter, and by 25 percent for all of 2006.
The airline industry has been weakened by stiff competition and overcapacity. High fuel prices have further eroded earnings. But the industry is seeing signs of improvement as major carriers cut capacity and introduce lasting fare increases.
AirTran, however, has used a different strategy. Instead of cutting capacity, it has pursued an aggressive growth plan. When rivals pull planes from a route, AirTran often uses that opportunity to add flights.
JP Morgan airline analyst Jamie Baker said in a research note on Friday that if AirTran were to cut its capacity growth outlook, it would be a welcome change for the industry.
"As one of just a handful of growth culprits, AirTran's reversal from its heretofore relentless pursuit of growth is likely to be greeted warmly by the market, in our view, contributing to optimism that other carriers may follow," Baker said.
AirTran said in the filing that its non-fuel costs continue to decline and should fall 3 percent to 5 percent in the third quarter. It previously predicted a reduction of 2 percent to 4 percent.
AirTran predicted fuel costs of $2.28 to $2.33 per gallon in the third quarter. In July it forecast $2.30 to $2.35 in the third quarter and $2.25 to $2.30 in the fourth quarter.
