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Orange Alert May Put Airlines in Red

http://biz.yahoo.com/rb/030524/airlines_revenue_2.html

CHICAGO (Reuters) - The color orange may leave U.S. airlines seeing more red, as in ink, just as signs emerged of demand recovering after the war in Iraq, analysts said.
The U.S. government this week said it would raise its terror alert status to "high" from "elevated" because of renewed risk of attacks in the United States, which lifted the level to orange from yellow on the color-coded scale.

That could be more bad news for a cyclical industry that counts on summer leisure travel and still suffers from the slow economy and the pneumonia-like SARS virus, analysts said.

"Airlines have indicated that forward bookings were strengthening, but that was before the current Orange alert," Blaylock & Partners airline analyst Ray Neidl said in a note, adding that airlines have little leverage to raise fares.

Traffic for the most recent week ended Sunday, before the alert, declined on domestic and Latin American routes as well as on flights across the Atlantic and Pacific, Neidl said.

Last week's results were disappointing and could not be pinned on bad weather or another outside factor, Credit Suisse First Boston analyst James Higgins said in a note. Traffic was off 10 percent systemwide from a year earlier, compared with a 9.8 percent decline a week earlier.

"Furthermore, Tuesday's increase in the terror alert to orange cannot help traffic trends in coming weeks," he said.

Still, the intermediate term view on airline shares remains relatively favorable, Higgins said.

"Almost all that could go wrong ... has happened," Deutsche Bank Securities analyst Susan Donofrio said in a note.

The reactions came as the Air Transport Association, a lobbying group for U.S. airlines, released unit revenue results for April to members. Unit revenue is a key industry measure based on revenue generated for every seat on a plane.

Analysts said unit revenue for U.S. airlines fell more than expected at 4.2 percent in April compared with a year earlier and fell 18.4 percent compared with April 2000, before the downturn. March unit revenue fell 8.1 percent from a year ago.

Unit revenue for transpacific routes dropped 32.8 percent in April from a year earlier as SARS, or Severe Acute Respiratory Syndrome, took an increasing toll on travel. Unit revenue had dropped 19.5 percent in March from a year earlier.

For domestic routes, unit revenue declined 2.3 percent in April from a year earlier. Transatlantic route unit revenue fell 5.8 percent, improved from the March decline of 14.4 percent before and during the Iraq war.