U.S. airline shares fell Wednesday June 13, 2007 afternoon as several carriers, including low-cost leader Southwest Airlines Co., warned of extended domestic travel weakness. The Amex Airline Index fell 1% to 48.28, its lowest intraday level since mid-September, as airlines painted a dimmer picture for revenue growth as the economy slows.

The broader Dow Jones Wilshire Airline Index fell 1% to 1,174.

Shares of Delta Air Lines Inc. , Northwest Airlines Corp. and Southwest all figured in the early action.

Delta said earlier Wednesday it would change its accounting for its SkyMiles frequent-flyer program.

This would add $72 million to revenue for the two-month period ending June 30 and $186 million for the eight-month period ending December. For the latter period, Delta forecasts $43 million in pretax income, a turnaround from its previous estimate of a loss of $145 million.

The Atlanta-based carrier estimated a second-quarter operating margin of 11% to 12%, as domestic capacity is expected to fall by 4% to 6% and international capacity is expected to rise by 14% to 16%, compared with the same period in 2006. Mainline non-fuel unit costs are forecast to drop 2% to 3% in the quarter from the previous year.

Delta also amended its Visa/Mastercard card agreement to eliminate a $1.1 billion holdback requirement. The carrier’s shares gained 0.6% to $18.51.

Late Tuesday, Northwest Airlines Corp. said in a regulatory filing that it sees domestic unit revenue “softness” in the airline industry, as the supply of airplane seats runs up against a slowing economy.

The Egan, Minn., carrier said that its domestic capacity for the rest of 2007 would be flat but that overall available seat miles would rise, helped by a boost in transatlantic traffic.

Northwest’s consolidated unit revenue in the second quarter is forecast to fall by 0.5% to 1%. The carrier’s shares fell 2.4% to $22.25.

Southwest, the largest carrier of domestic passengers, also said it sees domestic travel softening. The carrier had assumed a better economic environment in 2007 and might adjust its growth plans if demand doesn’t improve, Chief Executive Gary Kelly said in an investor presentation.

Continental Airlines Inc., by comparison, sees total consolidated capacity rising 4.3% in 2007 over 2006. It forecasts a load factor, or percentage of seats filled with paying passengers, of 83.3% for the second quarter.

Like Delta and Northwest, Continental’s international seating capacity will rise faster than domestic seats. The Houston-based airline also said it expects to end the second quarter of 2007 with $3.1-$3.2 billion cash on hand.

U.S. Airways Group Inc. said it sees a downward revision in airline industry earnings estimates as second-quarter revenue flattens, capacity increases and fuel costs rise. It projects its own unit revenue as holding steady with the 2006 period, but its capacity declining. Available seat miles would decline partly through the return of aircraft, U.S. Airways said.

U.S. Airways shares fell 2.4%.
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