United Airlines stated it expects unit revenue (per ASM) to increase by 26%-27% in 2Q2010, following a 19% year-on-year increase in 1Q2010 (Reuters, 14-Jun-2010). Capacity (ASKs) in the second quarter is expected to increase 0.9% on a consolidated basis, after previously (in late Apr-2010) forecasting a capacity increase of up to 1.3% in the quarter. The carrier added that it expects to end 2Q2010 with an unrestricted cash balance of approximately USD4.8 billion.
United expects 26%-27% increase in 2Q2010 unit revenue
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Pressure mounts on Southwest Airlines to deliver on its goal of positive unit revenue in early 2017
Southwest Airlines believes it can potentially achieve a positive unit revenue result in early 2017, but its sequential trends from 3Q2016 to 4Q2016 are not improving at the rate of the three large US global network airlines. In fact, if Southwest hits the upper end of its unit revenue guidance for the last three months of 2016, the company’s performance could worsen on a sequential basis.
Many factors are driving Southwest’s unit revenue pressure at the end of 2016, including the effects of a credit card agreement that lifted its unit revenues in 2015 and 2016, competitive capacity additions in its markets and a still-soft, but improving domestic pricing environment. In order to regain positive unit revenue Southwest’s planned capacity growth is decreasing year-on-year for 2017. Additionally, the airline is scrutinising its network in order to determine which routes can generate maximum revenue production.
Southwest is also bracing for cost inflation in 4Q2016 driven by tentative collective bargaining agreements recently reached with pilots and flight attendants in 3Q2016. The cost increases from those agreements – if they are ratified – will continue into 2107, putting extra pressure on Southwest to deliver on its unit revenue targets.
United, Delta, American Airlines: Cost creep, rising oil prices put pressure on the Big 3 to deliver
For the large three global US network airlines – American, Delta and United – the final quarter of 2016 offers some hope of negative unit revenue trends starting to stabilise, a welcome sign after two years of declines. But those positive developments are occurring against a backdrop of rising fuel costs and overall cost creep for those airlines, as labour expenses rise in the face of new collective bargaining agreements they have achieved.
Although each airline has offered a nuanced interpretation of domestic trends, the general consensus is that dynamics began to improve in Aug-2016 as close-in yields started to strengthen. After enduring tough conditions in Latin America driven by Brazil’s recession, American and Delta posted positive passenger unit revenues (PRASM) in their Latin entities in 3Q2016, and expect further improvement. Higher industry capacity is creating challenges for those airlines in the Atlantic and Pacific, but generally it seems that the path of unit revenue declines in those regions should moderate progressively.
Delta is aiming to post positive PRASM early in 2017, and American believes it can reach a positive result in total unit revenues in 1H2017. For now United is not offering a specific time period for a reversal of negative PRASM, but feels confident it is heading in the right direction, given the changing dynamics in certain areas of its network.