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Have the US airlines turned the corner? Impressive PRASM performance for Southwest and United

10-Feb-2010
  • Impressive PRASM performance for Southwest and United Airlines, not so for JetBlue and Continental;
  • Fifth consecutive month of PRASM growth for Southwest;
  • Nine months of PRASM reductions for JetBlue, but reductions narrowing;
  • United Airlines reports largest PRASM improvement since Jan-2010;
  • Continental Airlines’ yields improve - best PRASM performance since Dec-2008;
  • US Airways seeing “encouraging revenue momentum”;
  • 2009 passenger revenue declined 18% for the largest drop on record, but improved outlook for 2010.

Southwest, the star performer in improving its unit revenues in recent months, continued to trump JetBlue, US Airways and Continental Airlines in the yield growth stakes in Jan-2010, with double-digit PRASM growth.

In a further positive development with regards to corporate transparency, United Airlines provided two years of PRASM data this month, after previously not reporting its monthly unit revenues. The data shows strong unit revenue growth, with United commenting that “given the significant volatility in the revenue environment in 2009, management believes investors will find the year-over-year comparison to be useful”. (See more below).

But Southwest led the way, providing hopes the US airline industry may have finally turned the corner.

US airline unit revenue highlights: Jan-2010

  

PRASM

RASM

Southwest (Estimated)

+14% to +15%

n/a

United Airlines (Estimated)

+9.5% to +11.5%

n/a

US Airways (Estimated)

+2%

+3%

Continental (Estimated)

-1.0% to -2.0%

-2.5% to -3.5%

JetBlue (Estimated)

-2%

n/a

Fifth consecutive month of PRASM growth for Southwest

Southwest Airlines stated passenger revenue per ASM for Jan-2010 is estimated to have surged 14-15% in the month - it largest PRASM increase by far in the past 12 months and the fifth consecutive month of PRASM growth for the carrier. The increase built on growth of 6.0% in Jan-2009.

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

Looking forward, Southwest stated that with “strong revenue and booking trends continuing thus far into 2010, we expect another year-over-year increase in unit revenue for 1Q2010”.

Nine months of PRASM reductions for JetBlue, but reductions narrowing

JetBlue, meanwhile, reported a 2% reduction in PRASM in Jan-2010 (off last year’s positive base of +15%), for nine consecutive months of PRASM reductions. On a 12-month moving average, JetBlue’s PRASM is still deteriorating. 

JetBlue PRASM year-on-year increase and 12 month moving average: Jan-2009 to Jan-2010

Looking ahead to 2010, JetBlue expects PRASM and RASM to be in the range of down 1-2% in 1Q2010, but some solid improvement thereafter. JetBlue is forecasting PRASM and RASM for the full year to increase in the +5% to +8% range.  (Also among the LCCs, AirTran Airways stated it expects total unit revenue per ASM in 1Q2010 to be up by 2.5% to 3.5%.

United Airlines reports largest PRASM improvement since Jan-2010

United Airlines, meanwhile, reported that consolidated passenger revenue per available seat mile (PRASM) is estimated to have increased 9.5% to 11.5% year-on-year in Jan-2010, for the second consecutive month of improvements and the largest year-on-year rise since Jan-2008. The Jan-2010 surge was preceded by 13 months of contractions, with PRASM down in every quarter of 2009. Consolidated PRASM estimated to have increased 2.0% to 4.0%.

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

United Airlines consolidated PRASM developments: 1Q2008 to 4Q2009

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%

Continental Airlines’ yields improve - best PRASM performance since Dec-2008

Continental reported an encouraging set of traffic results for Jan-2010, with the smallest yield contraction in over 12 months.  During Jan-2010, consolidated passenger revenue per available seat mile (PRASM) is estimated to have decreased between 1.0% and 2.0%, while mainline PRASM is estimated to have decreased between 2.5% and 3.5%. However, Jan-2009 PRASM was already falling (by around 5%).

For Dec-2009, Continental Airlines confirmed that consolidated passenger RASM decreased by 4.1%, within the carrier’s expectations of a 3.5% to 4.5% reduction, while mainline passenger RASM decreased by 4.8%, on the lower end of the carrier’s estimates of a 4.5% to 5.5% reduction. 

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

Looking at a two-year range, Continental’s Jan-2010 PRASM decreased 5.8% over Jan-2008 (around when the US entered recession). 

Continental Airlines’ consolidated PRASM growth (two year range): Feb-2009 to Dec-2009

US Airways seeing “encouraging revenue momentum” 

US Airways President, Scott Kirby, stated that the carrier’s consolidated (mainline and Express) PRASM increased by approximately 2% in Jan-2010, while total revenue per ASM increased by approximately 3% in the month.

Mr Kirby added that the “encouraging revenue momentum we saw in late 2009 has carried into 2010 in both corporate revenue and booked yields."

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

2009 passenger revenue declined 18% for the largest drop on record

2009 was an extremely challenging year for US airlines, with passenger revenue declining 18% year-on-year in the full year, as a result of a 6% reduction in passenger volume and a 13% drop in the average price paid to fly one mile. The decline in passenger revenue from 2008 to 2009 was the largest on record, exceeding the 14% decline observed from 2000 to 2001.

Yields have also strengthened towards the end of 2009.

ATA yield growth: Dec-2007 to Dec-2009

On a 12-month moving average, domestic and Atlantic yields appear to have stabilised, though Pacific yields are still deteriorating.

ATA yield: 12 months moving average

… but improved outlook for 2010

The outlook for 2010 is more optimistic, with ATA President and CEO, James C May, commenting, “the global recession, accompanied by high levels of unemployment, hit air travel demand especially hard in 2009 but the declines appear to be bottoming out. Anecdotal evidence suggests a positive revenue trajectory in 2010”.

Meanwhile, ATA VP and Chief Economist, John Heimlich, in ATA’s 2010 Airline Industry Economic Perspective, commented that many airlines are “reporting a steady upward trend in bookings going into the New Year, including premium seating for business customers”. He added that this is “cause for optimism” after a year that saw US airlines’ yields being severely battered. 

Despite signs of improvement, Mr Heimlich warned that it is “important to remember that ‘better than 2009 is not saying a whole lot’ in the grand scheme”. 


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