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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US airlines: a turnaround in unit revenue just as cost pressures rise in 2017
The four largest US airlines are moving closer to returning to positive unit revenue in 2017 after each of those companies has issued an improved unit revenue forecast for 4Q2016, driven by stronger yields and continued improvement in close in bookings. The yield improvement indicates that the US domestic environment is gaining some pricing traction after two years of weak fares, and the results on close in bookings continue a trend that emerged in the US market during late 3Q2016 and continued through the rest of the year.
Delta and Southwest have both publicly cited a bump in demand since the US presidential election in Nov-2016. Delta has expressed cautious optimism that the US revenue environment has turned a corner, and the positive momentum is driving the company’s confidence of climbing out of a negative unit revenue performance in 1Q2017.
Key to sustaining unit revenue momentum is keeping capacity in check over the course of 2017. American, Delta, United and Southwest have all declared their intentions to lower capacity growth in 2017, and show no intentions of revising those targets upwards. Rising fuel cost and non fuel cost inflation are the major headwinds for US airlines in 2017, which has resulted in Delta declaring margin compression for the year.
US airlines Part 1: labour and oil costs create challenges for the Big 3 airlines as 2017 begins
US airlines, across all business models during 2017, are attempting to arrest negative unit revenue trends that have remained stubbornly in place for two years. Rising labour and fuel costs are heightening the importance of a return to positive unit revenue as investors attempt to determine whether an inflection point in the weaker US pricing environment has been reached.
In order to achieve their stated targets to return to positive unit revenue during 2017, most US airlines are planning lower capacity growth than the year prior as a means to stabilise pricing trends in the market. Many of the country’s airlines struck a positive tone at the end of 2016 after close-in yields began to stabilise in the domestic market. However, challenges remain in some international markets, particularly the trans-Atlantic. American, Delta and United are working to adjust their capacity in order to fuel investor confidence that their unit revenue fortunes will turn positive in 2017.
Investors are likely viewing declarations by US airlines of a return to positive unit revenue in 2017 with some level of scepticism, since many of those entities have inaccurately predicted when their unit revenue performance would improve. But with higher labour and fuel expenses, the urgency to chart a positive unit revenue performance is becoming more pronounced.
This is is the first of two reports examining the outlook for US airlines in 2017.