US airlines tout strong recovery but remain cautious on capacity

US airlines were bullish on the industry's recovery in comments to investors yesterday, predicting robust second-quarter unit revenue increases.

Speaking at the Merrill Lynch Global Transportation Conference in New York, available via webcast, United Airlines CFO Kathryn Mikells said the recovery is "greater than we were able to predict six months ago." She said UA's consolidated unit revenue will rise 26% or more year-over-year in the current quarter.

US Airways President Scott Kirby added that "the industry appears to be turning a corner. We've seen a dramatic recovery in business travel."

Delta Air Lines President Ed Bastian said, "We continue to see momentum building in the business...We expect to see solid, double-digit unit revenue increases at least throughout the summer." He said PRASM likely will be up 20% year-over-year for the current quarter. "Clearly the economy is providing a considerable amount of lift for all the carriers," he commented.

But airlines said they will continue their cautious approach on capacity despite the improving environment. "We are certainly maintaining that capacity discipline," Bastian said. He added that with fuel prices "substantially higher" and "volatile" and memories fresh of $135-per-barrel oil prices in 2008, carriers will "think hard" before adding capacity.

American Airlines Chairman and CEO Gerard Arpey said, "if we assume the current economic recovery has legs, and perhaps that’s a brave assumption, then I think as an industry we are much better positioned to leverage the upturn than we have been in previous recoveries" owing to capacity discipline.

He explained, "There are far fewer seats for sale in the marketplace today than there were five years ago. There are also hopeful signs that the industry has learned its lesson about keeping capacity growth in line with demand, and will continue to apply that lesson even as the economy comes back. The proposed United-Continental [Airlines] combination, if approved by regulators, will allow for one fewer choice in the marketplace and should contribute to a more rational balance between supply and demand."