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After seeing busy traffic over the last two months, most of the North American airlines witnessed weak traffic in July. Weakening economy is restricting the demand for business travel, thereby leading to lower traffic in July. This is expected to continue in August and September. However, some low cost carriers emerged winners in July on the heels of low fares.

Also, based on numerous macro headwinds, we are seeing indications of a pronounced downtrend in earnings estimates for the U.S. carriers.

Airline traffic is customarily measured in billions of revenue passenger miles (RPM), which imply revenue generated per mile per passenger.

Consolidated July traffic decreased 2.8% at the largest U.S. airline United Continental Holdings Inc. (UAL - Analyst Report). Both international and domestic traffic fell 1.9% and 4.6%, respectively. Capacity (or available seat miles) slid 2.1% year over year and load factor (percentage of seats filled with passengers) declined 60 basis points (bps) year over year to 86.6%. United Continental expects unit revenue to be flat year over year for the month of July, measured by passenger revenue per available seat mile (PRASM), a key metric in airlines.

This is resulting in lower projections for the company's profitability. In the last one month, the Zacks Consensus estimates for UAL went down by 99 cents to $3.58 and $1.00 to $5.11 for 2012 and 2013, respectively. Notably, the Zacks Consensus estimates for this year and the next were $4.57 and $6.11 one month back.

The July traffic for the second largest U.S. airline Delta Air Lines (DAL - Analyst Report) declined 2.8% year over year on weak domestic (down 1.6%) and international (down 4.4%) traffic. Consolidated capacity fell 3.1% while the load factor improved a modest 20 bps to 87.8%. The company’s PRASM increased 4.5% year over year for July.

Like UAL, earnings expectations for Delta have also been trending down lately. The current Zacks Consensus estimates of $2.18 and $2.87 for 2012 and 2013 are down from $2.41 and $3.06 a month ago, respectively.

Traffic for the low-cost carrier Southwest Airlines Co. (LUV - Analyst Report) remained flat year over year in July, as 0.6% growth in capacity fully offset the 50 bps drop in load factor. The company expects PRASM to increase 2% year over year for July. However, earnings estimates for Southwest are moving down on the heels of European woes and uncertain U.S. economic conditions. The Zacks Consensus estimates for this year and the next have decreased by 4 cents (to 78 cents) and 2 cents (to $1.07) in the past one month.

The discounted U.S. airline JetBlue Airways Corporation (JBLU - Analyst Report) reported a 7.1% year-over-year traffic increase in July. On a year-over-year basis, capacity rose 5.5% and load factor grew 130 bps to 87.2%. Despite a growth in traffic, earnings estimates for JetBlue are substantially down from the last month. The Zacks Consensus estimates fell by a penny to 54 cents for 2012 and 2 cents to 67 cents for 2013.

Traffic at Alaska Air Group Inc. (ALK - Snapshot Report) also climbed 8.5% year over year, the highest compared to its rivals, in the month of July. Both capacity and load factor rose 8.0% and 50 bps, respectively, year over year. As a result, earnings estimates for the company are nicely up for 2012 but down for 2013 since the past one month. The earnings estimates for Alaska are pegged at $4.93 and $5.43 for this year and the next, respectively.

The month’s traffic for US Airways Group Inc. inched up 0.4% year over year on strong capacity, which improved 2.2% from the year-ago month. Load factor however contracted 150 bps year over year to 86.2%. The earnings estimates for LCC have fallen significantly of late, with EPS estimates currently being $2.96 and $3.65 for this year and the next. These estimates fell from $3.23 and $3.76, respectively, over the past one month.

For the short term (1-3 months), United Continental, Delta, Southwest, JetBlue and Alaska hold the Zacks # 3 (Hold) Rank while US Airways retains the Zacks #2 (Buy) Rank.

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