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A Citi analyst said Wednesday that airlines' May revenue results foreshadow an uptick in summer prices and demand, but he recommends investors still buy cautiously and watch how post-Labor Day business travel plays out.
Analyst Will Randow noted that United, Southwest and US Airways all topped Wall Street's expectations for May passenger revenue per available seat mile -- a key industry metric that measures how much money the airline makes for every mile it carries a paying passenger. United's better-than-expected results were particularly encouraging, he said, because the improvement came solely almost solely from higher ticket prices.
United's results suggest that "the strong summer peak travel period should lift the tides for mid-year airline earnings, and potentially also the stocks as the revenue environment appears to be firming," he wrote in a note to clients. Jet fuel prices are also less of a concern, falling 6 percent since April.
Yet despite lower fuel prices and better yields, airline stocks have fallen over the last two months. Randow said investors should take advantage of this, but he urges caution after July when corporate travel executives start to re-assess plans for post-Labor day flights.
Shares of United parent United Continental Holdings Inc. rose 57 cents, or 2.6 percent, to $22.47, while Southwest Airlines Co. slipped a penny to $11.32 and US Airways Airways Group Inc. lost 4 cents to $8.52 in morning trading Wednesday.