Airlines Hit by Federal Budget Cuts

April 3, 2013 by Paul Ausick

airplane
Source: Thinkstock
US Airways Group Inc. (NYSE: LCC) reported today that March traffic rose 5.1% year-over-year as measured by revenue passenger miles. Available seat miles rose by 3.2% over March 2012, and load factor came in at a record 86.1%. Passenger revenue per available seat mile was flat with a year ago, and therein lies the problem.

Yesterday Delta Air Lines Inc. (NYSE: DAL) reported that passenger revenue miles rose by just 2% in March. Unit revenue rose 5% in February and 5.5% in January, so the sharp drop in growth weighed on all airlines stocks yesterday.

Both US Airways and Delta are blaming a drop in the number of last-minute bookings for the lower revenue growth, and both blame the impact of the federal budget cuts (the sequester) for a drop in the number of trips taken by government employees. Delta lowered its quarterly unit revenue growth estimate from a range of 4.0% to 5.5% to a new range of 4.0% to 4.5% yesterday. US Airways did not make any revenue forecast.

Shares of US Airways are down 2.5% just before noon today, at $15.35 in a 52-week range of $7.45 to $17.43.

Shares of Delta down 2.4%, at $14.58 in a 52-week range of $8.42 to $17.25.

US Airways continues to work on completing its proposed merger with American Airlines, which could close in around six months.