12-Aug-2010 4:29 PM

Double-digit PRASM performance for United, Continental, Southwest, JetBlue & US Airways in Jul-2010

Analysis

United, Continental, Southwest, JetBlue and US Airways all reported double-digit unit revenue increases in Jul-2010. Growth was above 15% across the board in the month, which was also characterised by strong load factors, reflecting continued careful capacity management.

US airline unit revenue highlights: Jul-2010

	PRASM	RASM
United Airlines (Estimated)	+22.0% to +23.0%	n/a
Continental (Estimated)	+20.5% to +21.5%	+21.5% to +22.5%
Southwest (Estimated)	+17 to 18%	n/a
JetBlue (Estimated)	+16%	n/a
US Airways (Estimated)	+16%	+17%
Allegiant (Estimated)	n/a	+3.85% to +4.15%

All of the US majors reported yield, PRASM and RASM growth in 1H2010 and 2Q2010. This is expected to continue in the second half of 2H2010.

US airline unit revenue highlights: 2Q2010

	2Q2010 Yield per RPM	Year-on-year change	2Q2010 PRASM	Year-on-year change	2Q2010 RASM	Year-on-year change
Southwest	14.93	+17.3%	n/a	n/a	12.44	+21.5%
Delta~	14.05	+16.7%	11.94	+19.4%	n/a	n/a
United Airlines ^	14.03	+24.6%	11.96	+28.3%	13.34	+28.8%
American Airlines*	13.28	+14.0%	11.14	+16.8%	n/a	n/a
US Airways*	13.11	+18.1%	11.04	+17.3%	n/a	n/a
Continental~	12.87	+16.3%	10.94	+18.8%	12.50	+18.0%
AirTran	12.19	+9.4%	10.13	+12.6%	11.19	+10.7%
JetBlue	11.93	+8.2%	9.78	+11.7%	10.81	+10.4%

US airline unit revenue highlights: 1H2010

	1H2010 Yield per RPM	Year-on-year change	1H2010 PRASM	Year-on-year change	1H2010 RASM	Year-on-year change
Southwest	14.75	13.4 %	n/a	n/a	12.06	20.6 %
Delta	13.89	+11.1%	11.44	+14.2%	n/a	n/a
United Airlines ^	13.63	+18.5%	11.38	+24.1%	12.74	+24.4%
American Airlines	13.31	+8.9%	10.78	+11.8%	n/a	n/a
US Airways*	13.07	+13.0%	10.66	+12.8%	n/a	n/a
AirTran	12.26	+6.7%	9.84	+9.0%	10.93	+8.1%
JetBlue	12.02	+6.0%	9.55	+8.3%	10.57	+6.9%
Continental~	11.99	+12.0%	10.45	+12.2%	10.45	+12.2%

11th consecutive month of PRASM growth for Southwest

Southwest Airlines stated passenger revenue per ASM for Jul-2010 is estimated to have surged between 17% and 18% in Jul-2010 for the 11th consecutive month of PRASM growth for the carrier and the seventh consecutive month of double-digit PRASM growth. The increase compares with a 5% RASM reduction in Jul-2009. (Southwest did not provide monthly PRASM breakdowns in 2008).

Southwest PRASM year-on-year increase: Jan-2009 to Jul-2010

Double-digit yield, RASM and average fare increases in 2Q2010 for Southwest

In 2Q2010, Southwest reported double-digit improvements in yield (per RPM) and operating revenue (per ASK), with growth of 17.3% and 21.3%, respectively, with the average passenger fare increasing 19.3% to USD131.82.

The carrier separately commented that its outlook has improved drastically in Jun-2010 and Jul-2010, with "strong" demand and revenue growth expected in the third quarter and the full-year. However, the carrier warned: "Our year-over-year growth rates will face more and more difficult comparisons, of course, due to the rapid revenue recovery that began at Southwest a year ago. Each of the three years preceding 2009 experienced more normal seasonal trends and provide a better gauge of second half 2010 potential revenue health."

CEO Gary Kelly has also cautioned it could take "several years" for business travel demand to recover from the "terrible" year in 2009, in which business travel took a "huge hit". He added that the carrier's results have improved in 2010 compared with 2009 levels, stating: "The domestic airline industry is in much better shape now than it was a year ago."

Improving yields part of the Allegiant story

Allegiant, which has now provided monthly revenue updates for the past two months, estimated that Jul-2010 scheduled revenue per ASM increased between 3.85% and 4.15% in the month, with an estimated year-on-year increase in scheduled total revenue per ASM (TRASM) of between 3.55% and 3.85%.

The carrier also confirmed actual Jun-2010 RASM and TRASM at 14.8% and 14.0%, respectively. That compared with RASM forecasts of between 14.75% and 15.25% and TRASM forecasts of 13.75% and 15.25%.

In 2Q2010, Allegiant reported scheduled service yield growth of 8.3% to USD 7.92 cents, with scheduled service RASM growth of 9.4% to USD 7. 27 cents - and within the previously estimated range of growth of between 9.25% and 9.6% - and TRASM growth of 7.7% to USD 10.70 cents, compared with estimated growth of between 7.5% and 7.9%. Total system RASM increased 4.4% to USD 10.51 cents.

Also in the quarter, the carrier's average scheduled fare increased 10.5% to USD107.63, comprised of a 12.3% increase in average fare to USD73.15 and a 6.9% increase in ancillary fare to USD34.48. This is higher than the previously anticipated increase of 9-10%.

AirTran reports 'significant' revenue recovery in 2Q2010

Also among the LCCs, AirTran Airways (which does not provide monthly yield updates), upon the release of the carrier's financial results for the three months ended Jun-2010, stated: "Tight cost controls, combined with prudent, long-term financial management, have enabled the company to bolster its financial health while experiencing a significant revenue recovery."

During the quarter, average yield per RPM increased 9.4% to USD 12.19 cents, with passenger revenue (per ASK) increasing 12.6% to USD 10.13 cents and total revenue per ASK increasing 10.7% to USD 11.19 cents. The carrier's TRASM performance in the quarter reached its highest second quarter level since 2001, but was below expected growth of 11-12%. Average fares (excluding transportation taxes) in the quarter increased 12.2% to USD97.03.

AirTran Airways and ATA unit revenue trends

The positive trend is expected to continue, with the LCC anticipating PRASM and TRASM growth of 14.5-16% and 12.5-14.5% in the third quarter.

JetBlue expects full-year PRASM and RASM growth of 10%

JetBlue reported a 16% PRASM increase in Jul-2010, marking the third consecutive month of double-digit PRASM increases and the sixth month of overall PRASM growth. The 16% increase in Jul-2010 followed a reduction of 9% in Jul-2009, which followed growth of 9.6% in Jul-2008.

JetBlue PRASM year-on-year increase: May-2007 to Jul-2010

On a 12-month moving average, JetBlue's PRASM has seen an uptick in the past few months.

JetBlue PRASM 12 month moving average: Apr-2008 to Jul-2010

JetBlue reported a 8.2% year-on-year increase in yield to USD 11.93 cents in the second quarter, while PRASM and RASM increased by 11.7% and 10.4%, respectively to USD 9.78 cents and USD 10.81 cents. The carrier previously stated it was expecting 2Q2010 PRASM and RASM to increase in the 6-9% range, meaning the carrier exceeded its forecast quite considerably in the quarter.

JetBlue, upon the release of its second quarter results, stated it was "encouraged" by the strengthening revenue environment, with the carrier expecting a third quarter PRASM increase of 12-15%, with an anticipated RASM increase of 11-14%.

PRASM for the full year is expected to increase in the 9%-12% range, while RASM is expected to increase between 8% and 11%.

United Airlines' PRASM up compared with Jul-2008 levels

Among the network carriers, United Airlines reported an estimated increase in consolidated passenger revenue per available seat mile (PRASM) of 22% to 23% in Jul-2010, for the seventh consecutive month of improvements. Consolidated PRASM is estimated to have increased 3.9% to 4.9% in the month compared with Jul-2008 levels, of which approximately 2.0 ppts is due to fees and other ancillary revenue.

United Airlines PRASM growth (%): Jan-2008 to Jul-2010

United airlines reports double-digit PRASM gains in 2Q2010

United Airlines, in its second quarter financial report, reported a 19.1% increase in domestic PRASM, with consolidated PRASM gains of 26.9% in the period.

Meanwhile, mainline adjusted yield, PRASM and RASM increased by 24.6%, 28.3% and 28.8% respectively to USD 14.03 cents, USD 11.96 cents and USD 13.34 cents, respectively, with Consolidated yield, PRASM and RASM growth of 23.6%, 26.9% and 27.0%, respectively to USD 15.41 cents, USD 13.02 cents and USD 14.19 cents. The double-digit PRASM growth in 2Q2010 follows a 17.2% reduction in 2Q2009 and a 3.9% gain in 2Q2008.

UAL Corp Executive VP and CFO, Kathryn Mikells, said: "We are clearly on the right path toward our goal of achieving sustained and sufficient profitability across the economic cycle. While there is much more work needed, our current results, including improvements in unit revenue, cost controls, cash flow and profit margin, demonstrate substantial progress against our objective."

In mid-Jun-2010, United Airlines stated it expected RASM to increase by 26%-27% in 2Q2010, with the carrier separately estimating 2Q2010 PRASM to increase by 19% year-on-year, meaning the carrier beat unit revenue expectations in the quarter.

United Airlines consolidated year-on-year PRASM

USD cents	Consolidated PRASM	Year-on-year growth
1Q2008	11.09	+8.3%
2Q2008	12.39	+3.9%
3Q2008	13.02	+5.2%
4Q2008	11.96	+2.1%
1Q2009	9.86	-11.1%
2Q2009	10.26	-17.2%
3Q2009	11.10	-14.7%
4Q2009	11.34	-5.2%
1Q2010	11.44 to 11.54	+16% to +17%
2Q2010	13.02	+26.9%

Continental records sixth consecutive month of positive yield developments

Continental also reported an encouraging set of traffic results for Jul-2010, with consolidated PRASM estimated to have increased in the 20.5% to 21.5% range, while mainline RASM is estimated to have increased in the range of 21.5% and 22.5% year-on-year. This represents the sixth consecutive month of positive yield growth for the carrier.

The carrier also confirmed that, for Jun-2010, consolidated PRASM increased 21.5% year-on-year (within the 21% to 22% range), while mainline passenger RASM increased 20.9% (within the previously estimated 20.5% to 21.5% range).

Continental Airlines consolidated PRASM (US cents per ASM): Feb-2008 to Jul-2010

The two-year change was also favourable for the month, with the 20%+ plus growth over the past two months comparing with reductions of 20%.

Continental Airlines' consolidated PRASM growth (two year range): Feb-2009 to Jul-2010

Double-digit yield, RASM and fare increases in 2Q2010

In the three months ended Jun-2010, the carrier reported double-digit increases in domestic yield and RASM, with domestic RASM increasing 12.8% and domestic yields increasing 12.6%. Meanwhile, consolidated mainline PRASM increased 18.8% to USD 10.94 cents in the quarter, with an 18.0% RASM increase to USD 12.50 cents and a 16.3% yield increase to USD 12.87 cents. Average fares increased 20.6% to USD236.24.

US Airways yields improve due to "strength" in business demand and yields

US Airways, meanwhile, stated its consolidated (mainline and Express) PRASM increased approximately 16% in Jul-2010, while total revenue per ASM increased by approximately 17% in the month. US Airways President Scott Kirby commented that the improvement was "largely driven by continued year-over-year strength in business demand and yield".

The carrier previously stated that yields bottomed in May-2009/Jun-2009, as the pricing environment "gradually improved" over the northern summer. The carrier added that the more positive yield data from Nov-2009 onwards coincided with "less aggressive" fare sales, the cancellation of so-called junk fares and "surcharges".

US Airways' RASM and PRASM growth (%): Jan-2009 to Jul-2010

Improving economy, increased business travel boosts yield in 2Q2010

In the three months ended Jun-2010, US Airways also reported double digit yield and RASM improvements, with yields increasing 18.1% to USD 13.11 cents and PRASM increasing 17.3% to USD 11.04 cents. Combined Mainland and Express yields and RASM increased 18.6% and 18.0%, respectively, to USD 15.31 cents and US 12.70 cents.

The carrier commented that the improvement was driven by higher passenger yields due to an improving economy resulting in greater demand for business travel.

Delta sees unit revenue momentum in 2Q2010

While Delta Air Lines does not provide unit revenue data, the carrier, in its second quarter financial release, reported a 14.1% increase in domestic unit revenues and a 14.2% increase in yields in the three months to Jun-2010, with a unit revenue increase of 19.4% and a yield increase of 16.7% to USD 11.94 cents and USD 14.05 cents, as strong growth in business bookings and yields continues into early summer.

Delta President, Ed Bastian, stated: "We are seeing strong improvements in these early stages of the economic recovery and believe there's room for more revenue growth as the economy continues to stabilise. We anticipate double-digit year over year unit revenue gains for the September quarter."

American Airlines sees double-digit yield growth

American Airlines reported improved yield and unit revenues in the Jun-2010 quarter, with domestic yields increasing 13.3% to USD 13.06 cents.

Meanwhile, consolidated PRASM increased 16.7%, with mainline unit revenue growth of 16.8%, due to tight capacity control (driving improved load factors) and improving economic conditions. Passenger yield increased by 14.0%. Cargo yields increased 6.4% to USD 35.67 cents in the quarter.

US network carriers' occupancy levels higher than LCC counterparts

Meanwhile, all of the US major airlines which had reported Jul-2010 traffic results as at 10-Jul-2010, with the exception of Southwest Airlines and AirTran, reported load factor reductions in the month. Comparatively, in previous months most of the US airlines reported load factor improvements. Load factors among the major US network airlines, however, were strong in the month, all in the 85% to 89% range, while load factors among the LCCs ranged from 84% to 89%. The US network carriers have pared back capacity so much that they are now consistently operating with higher load factors than their point-to-point LCC competitors.

Select US airlines domestic traffic^ highlights: Jul-2010

	Traffic (RPMs) (bill)	% Change	Capacity (ASMs) (bill)	% Change	Load factor (%)	% Change	Traffic - pax (mill)	% Change
Delta/Northwest*	11.5	-2.1%	13.1	-1.7%	88.2%	-0.3 ppts	n/a	n/a
Southwest~	7.5	+3.4%	8.8	+1.4%	84.9%	+1.7 ppts	8.2	+1.2%
American*	7.2	-0.4%	8.1	+0.8%	88.5%	-1.1 ppts	n/a	n/a
United+	5.5	-4.2%	6.2	-4.1%	88.8%	-0.1 ppts	n/a	n/a
US Airways*	4.0	-1.6%	4.7	+0.6%	85.5%	-2.0 ppts	4.0	-1.5%
Continental*	3.9	-2.5%	4.4	-0.9%	89.1%	-1.4 ppts	n/a	n/a
JetBlue	2.8	+8.3%	3.2	+8.1%	86.2%	+0.1 ppts	2.4	+7.6%
AirTran	2.0	+2.2%	2.3	+1.9%	88.6%	+0.3 ppts	2.4	+0.2%

As is usually the case, Southwest's load factors remained the weakest among the major US airlines in Jul-2010, but the LCC is working hard in this area, with the carrier load facto rof 84.9% in the month representing a record monthly load factor performance for the company.

Select US airline load factor (%) and load factor growth (ppts): Jul-2010

During the month, all of the major network carriers reported either capacity reductions or marginal capacity growth (of under 1%), with the LCCs reporting capacity increases, led as always by the smaller Allegiant among the US carriers.

North American carriers' domestic passenger capacity growth (% change year-on-year): Jul-2010

The trend was similar for traffic (RPMs) growth in the month.

North American carriers' domestic passenger traffic growth (% change year-on-year): Jul-2010

ATA reports double-digit passenger revenue improvements in Jun-2010

Looking at the industry-wide trend, the Air Transport Association of America (ATA) reported that passenger revenue, based on a sample group of carriers, rose 25% in Jun-2010, marking the sixth consecutive month of revenue growth. For the 12 months ended Jun-2010, passenger revenue was approximately 0.5% above calendar year 2000 levels.

Approximately 1.4% more passengers travelled on US airlines during the month while the average price to fly one mile rose 20%. International passenger revenue rose 38% led by a 58% gain in trans-Pacific markets.

ATA President and CEO, James May, said growth in passenger revenue in the month makes it "clear" that the "recovering US economy is enabling airlines to dig out from the very deep hole of a year ago", adding that the double-digit growth reflects "marketplace optimism".

ATA yield growth: Dec-2007 to Jun-2010

On a 12-month moving average, yields also appear to have stabilised and being moving in the upwards direction.

ATA yield: 12 months moving average: May-2008 to Jun-2010

Airfares return to 1999 levels but increase in 1Q2010

Meanwhile, the ATA commented that while airfares, in 1Q2010 increased by 4.7% year-on-year basis, they have returned to 1999 levels, with the average one-way fare standing at USD153.88. ATA added that "compared to 2008 pre-recession levels, fares grew only 0.4%, easily trailing the 2.3% jump in the US Consumer Price Index during that same period".

Mr May noted that while airfares appear to be stabilising, the airline industry has been in serious distress throughout the past "lost decade", adding: "This is a positive sign for recovery, not just in the airline sector but across the broader economy as well."

Post summer crunch time?

A reasonably positive picture was painted with the release of the US carriers' second quarter financial results earlier this month. Demand and revenue trends are moving in the right direction, although the strength of the underlying US economic recovery is still unclear. More observers are now talking about the prospects of a 'double-dip' recession, as unemployment remains stubbornly high. The current peak season should be a good one for airlines, as capacity remains tight, but the real test will come after the summer peak.