Airline Monthly Numbers Show Strong Likelihood of Profitability in 2010

RPM’s, ASM’s, LF’s: What do those terms mean and what are they telling us about the airline industry?

In the first week of every month, airlines publish selected operational data for the prior month. This data is always shown as a comparison to the same month a year earlier.

Airlines have their own language for reporting data.

• ASM (available seat mile), is the measurement for capacity. One ASM is one passenger seat, empty or full, flying one mile.
• RPM (revenue passenger mile) is the measurement for traffic. One RPM is one paid passenger, flying one mile.

In general, RPM’s generate revenue and ASM’s generate costs.

If you look only at last week’s year-over-year (y/y) comparisons for the airlines, it is easy to be negative on the industry.

October data for the 9 largest US airlines showed:

• Air Tran (AAI) and JetBlue (JBLU) were the only two carriers to increase capacity (ASM’s).
• American (AMR), Delta (DAL), United (UAUA) and US Airways (LCC) had a y/y decrease in traffic RPM’s.

In more normal times, year over year comparisons provide some credible accounting for seasonal changes in capacity and demand airlines typically go through.

I contend this year is different from the past and month-to-month data needs to be considered with the year-over-year comparisons and here is why:

In 2008, as jet fuel prices skyrocketed to historical highs and in order to reduce financial losses, airlines drastically reduced capacity (ASM’s). When the economic recession picked up speed going into 2009, traffic demand (RPM’s) also declined. In the last 12 months nearly every airline added or increased ancillary fees. Since these changes took place in different months, y/y comparisons may not give a very clear picture of what is actually occurring now with that airline.

When comparing October to September, all 9 airlines saw an increase in traffic with Delta and USAirways the only two airlines decreasing capacity.

The table shows each airline’s change in ASM’s and RPM’s, both year-over-year and October to September (Delta merged with Northwest in October 2008).

Conclusion: Several airlines had at or near record load factors (percentage of seats filled) in October. While air fares are considerably lower than a year ago, airlines have been successful at filling significantly more passenger seats this October than in the past.

There are strong indications going into year 2010, most airlines will finally see an increase in year over year operating revenues. If fuel costs remain stable, next year could be more profitable than many analysts are currently projecting.

Disclosure: The above opinions should not be used to determine the worth of any stock or investment. At the time of writing, the author and his family hold stock and derivative positions in AMR.

Comments

[ifuwish2:]

what about mesa airline

Nov 08 09:20 AM

[occupant:]

burningjetfuel.com

Nov 08 09:45 AM