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Summer not giving a lift to airlines

The airlines' crucial summer season has arrived, but the industry's vital signs remain feeble. Like a comatose patient, the travel business is still struggling to lift an eyelid, despite endless rounds of medication and prayers.

Several airlines in the United States are reporting this week that traffic in June was below last year's levels, despite the easing of fears over SARS and the end of heavy fighting in Iraq. Advance bookings have picked up from the spring but have not gained much momentum. Airlines are filling a larger percentage of their seats because they have been parking planes, but it is tough to tell whether that will give them leverage to raise fares.

If anything, the biggest airlines have been forced to lower walk-up fares in many markets _ the fares on which they traditionally depend for their profits _ because of the reticence of business travelers and the growing competition from low-cost airlines.

As for travelers, they are complaining about security hassles and poor service that they attribute to rampant cost-cutting at the airlines.

"As it relates to this summer, what I can tell you is yes, planes will be as full as ever, but there's little evidence to suggest that the overall demand for air travel is rising," said Jamie Baker, an analyst at J.P. Morgan Chase. "There is even less evidence to suggest that the business traveler is emerging from hibernation or beginning to stir."

Lending substance to that perception, Paul Zackin, a 34-year-old trade magazine publisher from Connecticut, said Wednesday at San Francisco International Airport that "Travel in the last two years has been a pretty big hassle and I try to avoid it whenever possible. The airlines have cut back, and flights are harder to schedule, and the lines are really long."

Airline executives acknowledge that travelers have failed to return in droves. Gary Kelly, chief financial officer of Southwest Airlines, the world's most profitable carrier, gave a lukewarm appraisal of summer bookings.

"We've got some heavy travel periods during the summer, which is what we expect," he said. "It shouldn't suggest to you that things have dramatically improved. They have not. But they have not gotten worse."

The Association of European Airlines, the continent's main trade group, reported that traffic for the week ending June 15 was 3.7 percent below the same period last year, with traffic to the Far East down a staggering 23.4 percent. British Airways said on Thursday that its June traffic rose by 5.8 percent. But it added that the growth would not translate into higher revenue, because traffic had been stimulated by sharp cuts in fares.

Perhaps most telling in this country are the June traffic numbers reported on Tuesday by American Airlines, the world's largest carrier. Domestic revenue passenger miles, a standard industry measure, were down 4.1 percent from June 2002, which was itself a relatively bad month. American's international revenue passenger miles were down 1 percent.

The decline in traffic was not as steep as in April and May, when many people avoided flying because of the war in Iraq and the onset of SARS. Still, the only region in which American had a year-over-year improvement in June traffic was Latin America, with a 4.3 percent increase.

But like many airlines, American was able to fill a larger percentage of its seats because it cut capacity by 7.7 percent systemwide. It reported a 4.4 percentage point growth year-over-year in the proportion of filled seats on domestic flights and a 1.7 point increase on international flights. The airline said in a recent filing with the Securities and Exchange Commission that it had positive cash flow from operations in May.

"Our bookings appear strong for the summer," said Tim Wagner, a company spokesman, though he declined to give specific numbers. "Since the end of the war in Iraq, we have seen what we would call pent-up demand from people who want to travel and now feel more comfortable traveling."

Baker, though, said his conversations with airline executives about advance bookings did not indicate that the travel slump was about to lift. He wrote in a recent note to investors that "at least one carrier reports week-to-week domestic booking build as having ground to a halt."

The Dow Jones Airlines Index closed at $125.46 a share Thursday, near its 52-week high of $127.92 and considerably above the low of $71.74. Analysts are forecasting a second-quarter loss of $4.65 a share on the average for the carriers in the index, wider than the $3.30 a share loss in the same period last year, according to Thomson First Call.

The higher percentage of filled seats these days does not necessarily mean the airlines will be able to make more money in the future. In theory, the lower the seat supply, the more the airlines can charge. But it is unclear right now whether travelers are willing to pay higher fares, especially since they have become used to declining prices: The average domestic fare paid has dropped almost every month since March 2001.

Though increased seat miles has never materialized, that might not have been for lack of trying.

Terry Trippler, an airfare expert at cheapseats.com, said that as of a week ago, leisure round-trip fares he surveyed in 17 markets _ 12 of them with hub airports _ were $10 to $20 higher than the same time last year. Partly that is because the federal government gave the airlines an opening by temporarily suspending the $2.50-a-leg security tax it added to tickets after the attacks of Sept. 11, 2001; as a result, many carriers raised domestic fares by $5 each way in mid May.

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