If crude oil stays at or less than USD85 per barrel this year, current profit estimates are likely to be conservative, according to AirlineFinancials.com founder, Bob Herbst. In fact, Herbst said data indicated that the nine largest carriers in the US will post USD2.7 billion in profits on USD120 billion in operating revenue, just USD6 billion shy of 2008 operating revenues.
In reviewing the nine mainline and low-cost airlines, Herbst not only projected the air traffic liability for the carriers to reach this projection, but reviewed how they stacked up against each other for their 2009 results.
He noted that while the larger carriers took the greatest his from the recession, it looks as though they will enjoy a larger recovery than the smaller carriers. In addition, Southwest and Delta enjoyed higher market capitalisation than the rest of the nine-airline group.
Looking at advanced ticket sales, Herbst predicts fare yields and revenues will be higher in 2010 versus 2009. His analysis suggests the larger legacy airlines have higher future passenger bookings than the smaller carriers.
Advanced ticket sales as a percentage of the previous 12 months' passenger revenue for the nine airlines in 2008 accounted for 14.4% of the USD16.3 billion in 2008 passenger revenue, rising to 16.8% but on lower revenue in 2009 of USD15.9 billion.
The nine largest carriers, which collectively, with their affiliate partners, carry over 88% of US domestic passenger market share, accumulated over USD4 billion in net losses in 2009 which followed an equally dismal year with an accumulation of USD3.5 billion in net losses. In 2008 the operating revenue for the group reach USD126.7 billion compared to the USD106.7 billion in 2009.
And the old adage 'the bigger they are, the harder they fall' was at work last year given the fact that the larger the airline, the larger the drop in revenue, Herbst said, noting that every airline had lower operating revenue last year.
Since 2008, United suffered the largest cumulative operating loss at USD1.6 billion, said Herbst. United was followed by American at USD1.5 billion, which, he pointed out, was the only one of the nine carriers to have an operating loss last year at USD833 million. Meanwhile, the smaller carriers outperformed the legacies with Southwest and JetBlue being the only two to enjoy positive operating income for both 2008 and 2009.
In 2009, the nine posted a USD662 million in operating income, a huge swing from the USD4.3 billion loss posted in 2008.
It is certainly no surprise that airlines last year increased debt in their chase for liquidity with long-term debt for the nine reaching USD52 million or 48.7% of total operating revenue, which is a far higher percentage that the 39.1% of the USD49.4 billion in long-term debt in 2008. That excludes Southwest which stayed approximately the same, said Herbst, who noted the highest debt ratio is JetBlue’s.
And as their debt rose their liquidity positions improved significantly in 2009 with JetBlue and Alaska finishing the year with the highest cash ratio and US Airways and Delta the lowest. Liquidity in 2008 equaled 13.3% of operating expenses at USD17.3 billion, rising to 20.7% at USD21.9 billion, said Herbst.
Herbst found the Southwest and Delta have significantly higher stock market capitalisation than their peers. Total for the group was 25.1 billion as a 4Q2008 medium versus a USD25 billion 4Q2009 medium in 2009.
EBITDAR and margins
Herbst also found that United and US Airways were the only two airlines with negative EBITDAR in 2008 and noted they made significant improvements in 2009. Meanwhile, American and Southwest had the most negative change in year-on-year margins. As a group the industry posted USD5.5 EBITDAR in 2008, rising to USD9.7 in 2009.
Market share of passenger miles
The nine carriers, with their regional affiliates flew fewer passenger miles in 2009 at 730.7 billion compared to the 768.6 billion in 2008 leaving little change in market share, although Southwest benefited most of the declines at legacies Delta, American and US Airways.
That held true when including the regional affiliates passenger traffic miles, but the five airline with regional programs also increase net market share after included regionals with the singular exception of American. Despite all the talk of outsourcing to regionals, there was very little change in regional passenger miles rising from 68.8 billion regional passenger miles in 2008 to 69 billion in 2009.