Security procedures cut airlines' revenue


September 07, 2006|By Bloomberg News

DALLAS -- Southwest Airlines Co., Continental Airlines Inc. and other U.S. airlines, which have raised fares this year as demand increased, say that security procedures instituted last month held down ticket prices and reduced revenue growth.

Travelers balked at paying the highest fares in August in the midst of increasingly cumbersome security. That offset a rise in passengers, damping revenue per seat flown a mile at Southwest, Continental and US Airways Group Inc., traffic reports show.

Travel was hampered by new security measures that began after police in London said last month that they had foiled a plan to blow up trans-Atlantic airlines, the carriers said. Rules requiring all liquids to be put in checked baggage increased security-screening time at airports and made it more difficult for travelers to take overnight trips with only carry-on bags.

The impact of the new security measures may be "short-lived," said Ray Neidl, an analyst with Calyon Securities Inc. in New York. The effect on revenue will be limited because demand remains strong, he said.

Southwest, which relies on short-haul travel to drive profit, said yesterday that its traffic grew 10 percent in August. But its revenue per seat will rise less than 10 percent in the third quarter because of the new security hassles, said Southwest, the dominant carrier at Baltimore-Washington International Thurgood Marshall Airport.

The results prompted Merrill Lynch analyst Michael Linenberg to reduce his estimate for Southwest's third-quarter unit revenue growth to 9.3 percent from 13.4 percent, and Raymond James analyst Jim Parker lowered his rating on the carrier.

Continental said Sept. 1 that its revenue per seat flown rose as much as 7.5 percent from last August and would have been 9.9 percent without the security changes. In July, the airline's unit revenue grew 9.6 percent.

US Airways Group's unit revenue grew 15 percent in August from a year earlier, 3 to 4 percentage points lower than expected because of the terror alert, the company said yesterday.

The carrier said its third-quarter unit revenue increase would be in the "midteens" instead of in the "high teens."

The ban on liquids came after British authorities arrested 25 men alleged to have participated in a plot to smuggle liquid explosives on board flights from London to the U.S. The plotters planned near-simultaneous explosions in midair, officials said.

U.S. passengers paid fares 11.3 percent higher in July for domestic travel compared with the previous year, according to the Air Transport Association, the industry's lobbying group. Data for August fares will be released this month.

The U.S. airlines that have reported August traffic as of yesterday had a combined 1.1 percent total traffic increase for the month, compared with August last year.

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