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According to published schedule data, AMR’s system-wide capacity (measured by seats, not ASMs) over the next three months (we now look at Apr-Jun) is up very modestly versus last week’s read of the same time period. AMR is likely to cut capacity by 2.4% y/y over the next three months, 9bp higher than the schedule data from last week. This was the fifth straight week that AMR has technically increased capacity (albeit very slightly) compared to the prior plan. AMR is cutting capacity over the next few months, but at a slower rate.
This week we examine freight trends and potential stock inflections based on them with two weeks remaining in first quarter. Domestic freight trends (outside of coal) have been solid and modestly improving, seasonally appropriate but very steady with continued strong pricing across the board. Conversely global freight trends have been down y/y for about three quarters now and spot pricing remains week. However, as we first highlighted two months ago with our FDX upgrade to Outperform and again last week with our reiteration of our Outperform rating on EXPD, we believe Asian imports to the U.S. and Europe, which have led global volumes down, have recently bottomed. We believe that inflection in global air and to a lesser extent ocean volumes should upwardly propel FDX and EXPD’s stocks over the next 6-12 months. While AAWW (rated Underperform) has similar geographical exposure to Asia freight volumes, given their historically high number of core long-term ACMI contracts to place over the next 12 months into a likely continued weak pricing environment, we expect AAWW to continue to materially disappoint investors’ expectations in C12 and C13.
ABFS is now trading just above book value and this historically represents a compelling entry point in periods of positive EPS and cash flow. Expectations for 1Q are low, and we see potential for an upside report into better than typical seasonal vols, rising fuel (we expect the LTLs to make money y/y on fuel in 1Q), benign weather and a friendly freight calendar including an extra day in Feb. and 5 Fridays in March. Given these tailwinds, we expect better than normal sequential OR performance in 1Q:12 and we are raising our EPS forecast from a loss of -$0.25 to -$0.06 vs. prior Cons. of -$0.16.
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