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Airline industry flying high into profits

According to AirlineFinancials.com LLC, US Airways, Southwest, and JetBlue set records for 2nd quarter revenue. The rest of the carriers barely missed their record. On the profit side, Delta and US Airways set records. Southwest and Alaska just missed their record.

According to AirlineFinancials.com LLC, the industry reported over $37 billion in revenue for the 2nd quarter 2013. This was the third consecutive record revenue for the 2nd quarter. To put this in perspective, this is a 76% increase over 2nd quarter revenue just 10 years ago.
 
Even more impressive is the recent record 2nd quarter cumulative profit of $2.5 billion, which was led in large part by Delta. This 2nd quarter profit was 25% higher than last year’s record $1.98 billion. And if that doesn’t get your attention, the cumulative profit margin was 6.6%. You have to go all the way back to the year 2000 to find a higher profit margin for the 2nd quarter.

US Airways, Southwest, and JetBlue set records for 2nd quarter revenue. The rest of the carriers barely missed their record. On the profit side, Delta and US Airways set records. Southwest and Alaska just missed their record.
 

Each airlines 2nd quarter revenue, profit and margin (in millions)
 
Delta                $ 9,707             $844     8.7%
US Airways       $ 3,865             $324     8.4%
Alaska              $ 1,256             $105     8.4%
Southwest         $ 4,643             $274     5.9%
American          $ 6,449             $357     5.5%
United               $10,001            $521     5.2%
JetBlue             $ 1,335             $ 36      2.7%

One of the reasons for the record 2nd quarter profits was due to the significant drop in the price of jet fuel. For the recent 2nd quarter, the airlines above collectively expensed $11 billion (30% of revenues) for fuel which was $1.3 billion less than last year. The 2nd quarter average spot price for jet fuel was an unexpected 6.4% lower this year compared to last year.

Outlook for full year 2013
AirlineFinancials.com LLC projects the airlines listed above will collectively report records of $144 billion in revenue and $6.7 billion in profits. While fuel price volatility and global events will create unpredictable pressure on revenue and profits, consolidation of the industry is the big driver behind -enough- pricing power to expect consistent profits not seen since the deregulation of the industry back in 1978.
 
Airline-by-airline summary of highs and lows
Delta – Has been hitting on all cylinders for the past few quarters and continues to outperform the industry.
 
For the 2nd quarter Delta:

  • Led the large network carriers in unit revenues and passenger yields
  • Continues to improve their balance sheet by reducing debt
  • Led the industry in net profit margins and is projected to lead the industry for 2013 profits
  • Full year projections are for a 6.3% profit margin from $37.4 billion in revenue

United – Until United resolves their ongoing labor issues from the 2010 merger with Continental, they will continue to struggle both operationally and financially.
 
For the 2nd quarter United:

  • Had relatively weak profit margins
  • Was the only airline to have a y/y decrease in passenger revenue and capacity
  • Had the highest y/y increase in net-debt for the net-work carriers
  • Has the highest network carrier net debt ratio of operating revenue
  • Full year projections are for a 4.0% profit margin from $38.5 billion in revenue

 American – About the best thing that can be said for AA is that their historically dismal operational performance and $billions in cumulative losses is close to the end as they will merge with US Airways in a few weeks.
 
For the 2nd quarter American:

  • Had especially low end profits when recognizing they had financial advantages provided through American’s bankruptcy
  • Had the industry’s worst operating margin
  • Had the lowest unit revenues for the network carriers
  • Had nearly all of their profit come directly from the y/y reduction in labor costs
  • Full year projections are for a 3.2% profit margin from $25.6 billion in revenue

US Airways – Continues to have strong operational and financial performance. In the next few weeks, US Airways management will take over American Airlines. It is our expectation that the merging of US Airways and American under CEO Doug Parker will provide very strong global competition to United and Delta and will further challenge Southwest’s lead for the domestic market share.
 
For the 2nd quarter US Airways:

  • Had the industry’s 2nd best profit margins only slightly less than industry leader Delta
  • Had the network carrier’s highest operating and EBITDAR margins
  • Had the highest y/y increases for capacity, revenue, and load factor (network carriers)
  • Full year projections are for a 4.3% profit margin from $14.5 billion in revenue

Southwest – Continues to be challenged by increasing unit costs. While Southwest’s costs have been steadily increasing, network competitors were very successful at lowering their costs. Southwest is now being aggressively challenged by relatively stronger network carriers for domestic market share. The ongoing merger with AirTran adds some much needed international markets which should increase the top-line revenue.
 
For the 2nd quarter Southwest:

  • Had profit margins at the low end of the industry
  • Continues to have the industry’s lowest load factors putting pressure on their attempts to increase fares
  • Leads the industry with labor costs
  • Has a very strong balance sheet with low net-debt ratio
  • Full year projections are for a 4.5% profit margin from $17.6 billion in revenue

 Alaska – Quarter after quarter Alaska has reported strong financial and operational performance.
 
For the 2nd quarter Alaska:

  • Had the industry’s highest operating margin and EBITDAR ratio
  • Has a strong balance sheet with the industry’s lowest net debt ratio
  • Full year projections are for a 7.8% profit margin from $5.0 billion in revenue

JetBlue – Is getting beat up by the much stronger network carriers on the high end and Southwest and Virgin on the lower end. There should be no arguments that JetBlue’s long-term outlook is dismal.
 
For the 2nd quarter JetBlue:

  • Had the industry’s lowest profit margin
  • Has the industry’s lowest unit revenues and passenger yields
  • Has the Industry’s highest net debt ratio
  • Full year projections are for a depressing 1.8% profit margin from $5.4 billion in revenue.
Co-Founder & Chief Editor - TravelDailyNews Media Network | Website | + Posts

Vicky is the co-founder of TravelDailyNews Media Network where she is the Editor-in Chief. She is also responsible for the daily operation and the financial policy. She holds a Bachelor's degree in Tourism Business Administration from the Technical University of Athens and a Master in Business Administration (MBA) from the University of Wales.

She has many years of both academic and industrial experience within the travel industry. She has written/edited numerous articles in various tourism magazines.

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