Shares of US airlines surged more than 7 percent Tuesday, the biggest one-day percentage jump since May 2009, after United Airlines reported January unit revenue that beat estimates, suggesting the sector's recovery is gaining steam.
"The magnitude of United's January PRASM (passenger revenue per available seat mile) strength clearly caught us by surprise, adding further conviction to our already-bullish industry stance," said JP Morgan analyst Jamie Baker in a research note.
United unit revenue rose between 9.5 percent and 11.5 percent in January. Baker had projected United's passenger revenue per available seat mile would rise between 3 percent and 5 percent.
American parent AMR was up more than 13 percent and Delta Air Lines rose more than 11 percent.
UAL shares jumped about 18 percent to USD$15.43 on the Nasdaq. They reached a year high.
"If unit revenues are rising at United, that's generally an indication that demand is improving in general," Standard & Poor's Equity analyst Jim Corridore said.
He added news that Japan Airlines would remain in the Oneworld alliance with American was aiding AMR. United, which partners with All Nippon Airways also has access to Japan's markets.
"The Japan Airlines news is maybe improving the outlook for both American and United because Delta is not going to have a strong partner in Japan," Corridore said.
SIGNS OF IMPROVEMENT
The US airline industry has been hammered in the past two years by severe recession. Airlines cut flights and grounded planes to reduce costs as demand from lucrative corporate clients fell.
In recent weeks, airlines have said business bookings are starting to pick up, dismantling a key roadblock to recovery for the sector. Most major US airlines reported higher traffic last month.
Still, airlines are not out of the woods and remain vulnerable to fuel-price fluctuations and other unforeseen events. For instance, Corridore said the extreme snowfall that has grounded flights along the US East Coast this week could increase costs for overtime and de-icing that may affect first-quarter earnings.
"Where it's going to hurt the carriers is an increase in expenses in the month of February," Corridore said.
Delta said Tuesday it had canceled 75 mainline flight connections. A United spokeswoman said that carrier canceled 800 flights.
Among other airline shares on Tuesday, US Airways was up 8.4 percent, Continental Airlines rose 10 percent and Southwest Airlines climbed 4.8 percent.
