STEng – DB

Record passenger bumping suggest US airline recovery

According to a recent Bloomberg article, U.S. airlines may bump the most passengers in nine years as business travelers resume flying following the deepest cuts in seats since World War II. U.S. Transportation Dept data indicate that almost 220,000 passengers were not able to board flights in 1Q 2010 even though they bought tickets, which is 25% higher yoy. At that pace, denied boardings in 2010 would surpass 2009’s 762,400 and reach the highest total since 2001. The increase in passenger bumping stems from traffic revival at carriers such as Delta and American Airlines, which have yet to restore reductions in capacity made during the recession. Continental and Southwest Airlines indicated their planes flew fuller than ever in May 2010. US Airways indicated that the industry is seeing a dramatic recovery in business travel. Airlines routinely sell more coach tickets than they have available on the assumption that not all passengers will show up.

This news is positive in our view and may prompt the eventual return of aircraft to active service for those which have been placed in storage during the crisis. ST Aerospace is well positioned to benefit with it being amongst the top two MRO providers in the US. The group currently handles about 70% of FedEx’s global fleet in MRO activities and about a third of UPS’s global fleet. In addition, its key US customers include United, US Airways, Delta, Northwest, Continental, Southwest and American Airways. The recovery of business travel is in line with IATA’s more positive view of global airline industry. IATA indicated recently that the industry will post US$2.5b profit in 2010, reversing two years of losses. It had been predicting US $2.8b loss as recently as March but has now removed that estimate as the economy rebounds.

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