US airline yields and profits benefit from tight demand-supply conditions
- US airlines are experiencing tight demand-supply conditions, leading to cautious capacity growth forecasts for FY2011.
- Some US airlines, including JetBlue, Spirit Airlines, and regional carriers, reported double-digit capacity growth in July 2011.
- Load factors for US airlines remained strong, with most carriers reporting load factors above 85%.
- Unit passenger revenues increased across the board in July 2011.
- The Air Transport Association of America reported growth in passenger revenue and traffic, particularly in the Latin American and Caribbean markets.
- US airlines are expected to be profitable in summer 2011, but caution remains due to high unemployment and slumping retail sales. Fare sales are being initiated to stimulate demand.
See related report: European airlines post healthy traffic gains in Jul-2010. Will the summer be strong enough?
Capacity growth in Jul-2011 among the major US airlines was generally limited to single-digits. There were, however, a few carriers reporting double-digit growth, including JetBlue, Spirit Airlines and the smaller regional carriers.
North American carriers' domestic passenger capacity growth (% change year-on-year): Jul-2011
Source: Centre for Asia Pacific Aviation and airline reports
Different growth profile among network carriers and regionals and LCCs
Traffic (RPMs) growth among US carriers was generally limited in the single digits (with contractions at Delta and American) in Jul-2011, with the exception of Hawaiian Airlines (which grew 20%). Double-digit growth was reported by some regional carriers, such as Skywest Airlines and American Eagle, and at Spirit Airlines and JetBlue Airways in the LCC segment. (Spirit reported monthly traffic for the first time in Jul-2011. See Appendix for full list of Jul-2011 traffic results).
North American carriers' traffic (RPMs) growth (%): Jul-2011
Source: Centre for Asia Pacific Aviation and airline reports
Load factors remain strong; averaging over 80%
Load factors were mixed in Jul-2011, with slightly more than half of the carriers reporting load factor growth. Allegiant Air (91.3%) and Spirit Airlines (90.0%) reported the best loads and the strongest load factor growth in the month of 5.0 ppts and 4.4 ppts, respectively. All but three carriers - American Eagle (78.2%), Horizon Air (80.9%) and Skywest Airlines (83.4%) - reported load factors above 85%.
North American carriers' load factors (%): Jul-2011
Source: Centre for Asia Pacific Aviation and airline reports
Unit revenue growth higher across the board
Unit passenger revenues were higher across the board in Jul-2011 among the carriers disclosing figures on a monthly basis.
US airline unit revenue highlights (estimates): Jul-2011
|
|
PRASM |
|---|---|
|
+5% |
|
|
+7.5% to +8.5% |
|
|
+8% |
|
|
+1% |
|
|
+23.7% to +24.1% |
The Air Transport Association of America (ATA) reported that passenger revenue, based on a sample group of carriers, rose 8% in Jun-2011 to USD 15.57 cents per RPM, marking the 18th consecutive month of revenue growth. Systemwide passenger traffic (RPMs) rose 0.3% while yield rose by over 7% in the month with a regional breakdown as follows:
- US domestic revenue grew nearly 7% as passenger yields increased 7%;
- Trans-Atlantic revenue increased 4.9% from a year ago;
- Trans-Pacific revenue rose 5.7%;
- Latin American/Caribbean revenue grew 21% as yields rose 17%.
"While the overall rate of growth in air travel expenditures appears to be slowing, we are encouraged by continued strength in the Latin American and Caribbean markets. We hope to see ongoing revenue growth in July to begin the third quarter," said ATA Vice President and Chief Economist John Heimlich.
Mr Heimlich previously stated that ATA forecasts 1.5% more passengers will fly during the summer months, with the association "optimistic that strong international demand will help offset volatile fuel costs". A continued recovery in passenger yields and unit revenues have occurred in 2011 linked to an improvement in high-fare business travel demand.
12-Month Rolling Passenger Revenue* per Available Seat Mile (PRASM)
Source: ATA
* Data for Alaska, American, Delta, JetBlue, United, US Airways
A profitable summer, but caution ahead
The nation's airlines are generally expected to be profitable over summer 2011, with increased demand, high load factors and improved yields. However, continued high US unemployment and slumping retail sales could signal reduced demand for leisure travel, offsetting the strength in premium/business travel. Fare sales initiated this week by Southwest and AirTran covering the second half of the year indicate a need to stimulate demand.
See related report: US airlines look to international markets for future growth
APPENDIX: US airline Jul-2011 traffic summary
Select US airlines domestic traffic^ highlights: Jul-2011
|
|
Traffic (RPMs) (bill) |
% Change |
Capacity (ASMs) (bill) |
% Change |
Load factor (%) |
% Change |
Traffic - pax (mill) |
% Change |
|---|---|---|---|---|---|---|---|---|
|
Delta/Northwest+ |
11.2 |
-0.9% |
12.8 |
-0.8% |
87.9% |
-0.2 ppts |
n/a |
n/a |
|
10.0 |
+5.9% |
11.8 |
+6.6% |
85.1% |
-0.5 ppts |
12.6 |
+1.2% |
|
|
9.4 |
+0.3% |
10.5 |
-0.7% |
89.8% |
+0.9 ppts |
n/a |
n/a |
|
|
7.2 |
-0.7% |
8.1 |
-0.6% |
88.5% |
+0.7 ppts |
n/a |
n/a |
|
|
4.3 |
+5.4% |
4.8 |
+2.4% |
88.1% |
+2.6 ppts |
4.2 |
+4.0% |
|
|
Skywest># |
2.8 |
+57.5% |
3.4 |
+56.0% |
83.4% |
+0.9 ppts |
5.3 |
+48.2% |
|
3.1 |
+11.1% |
3.6 |
+11.6% |
85.9% |
-0.3 ppts |
2.6 |
+9.4% |
|
|
2.1 |
+6.8% |
2.4 |
+5.5% |
88.5% |
+1.1 ppts |
1.7 |
+4.7% |
|
|
Republic> |
2.0 |
-2% |
2.4 |
0% |
85% |
-1 ppt |
3.0 |
-2% |
|
0.906 |
+15.7% |
1.2 |
+12.6% |
78.2% |
+2.1 ppts |
1.9 |
+9.3% |
|
|
0.927 |
+11.7% |
1.1 |
+13.6% |
85.2% |
-1.5 ppts |
0.799 |
-0.9% |
|
|
0.605 |
+6.0% |
0.663 |
+0.2% |
91.3% |
+5.0 ppts |
0.673 |
+6.8% |
|
|
0.186 |
-23.0% |
0.230 |
-22.4% |
80.9% |
-0.7 ppts |
0.586 |
-9.1% |
|
|
0.792 |
+20.0% |
0.880 |
+14.0% |
90.0% |
+4.4 ppts |
n/a |
n/a |