Carriers Blame U.S. Federal Budget Cuts For Loss Of Close-In Bookings - Business Travel News

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Carriers Blame U.S. Federal Budget Cuts For Loss Of Close-In Bookings

April 03, 2013 - 12:25 PM ET

By David Jonas

Delta Air Lines and US Airways separately cited the U.S. federal budget sequester—automatic budget cuts that went into effect March 1—for fewer "close-in" bookings during March, which pushed each carrier's March unit revenue lower than they expected.

Delta's consolidated passenger unit revenue in March increased 2 percent year over year, and US Airways' was flat.

According to a March 26 research note issued by analyst Daniel McKenzie of The Buckingham Research Group, US Airways "may be the most impacted by a sequester given its exposure to Washington, D.C. (at Reagan National Airport)," a situation that he wrote could be mitigated by merging with American Airlines and operating a much larger and more diverse network.

McKenzie added that the budget sequester generally "remains a wild card and thus a demand risk. Security delays from budget cuts at the Federal Aviation Administration and the Transportation Security Administration likely [will] impact bookings at some point."

In a subsequent note issued today, McKenzie noted that shares of Delta had traded lower this week "on general demand worries tied in part to the sequester."

Meanwhile, McKenzie noted that "capacity has come out of the industry and is mostly staying out. At the system level, 2Q13 capacity rises 0.6 percent year over year for the U.S. airlines and 0.7 percent in 3Q13. However, versus in 2007, the last year of industry profitability in the last cycle, the industry is still 9 percent smaller this summer. Said differently, despite aggressive growth by JetBlue, Spirit and Virgin, there are still 21 million fewer seats available for sale in global distribution systems domestically versus in 2007."

For March 2013, Delta's domestic U.S. traffic edged down 0.1 percent and capacity increased 1.6 percent, while US Airways posted a 5.9 percent increase in domestic U.S. traffic versus March 2012 and a 5 percent increase in domestic U.S. capacity.

Alaska Airlines also reported March operational data, with total combined traffic increasing 9 percent on an 8.7 percent capacity bump. Other major U.S. carriers are expected to report March traffic statistics in the coming days.

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