After years of posting profit margins in the double digits, Regional profit margins were only 5.7 percent during the second quarter, according to statistics released by the Department of Transportation’s Bureau of Transportation Statistics (BTS). The regional group’s profit margin of 5.7 was a 2.4 percentage point decrease from the 8.1 percent profit margin in the second quarter of 2006 and well below the eight percent called for in fee-for-departure contracts. The seven regional carriers reported a $143 million operating profit in the second quarter of 2007.
Regional carrier ExpressJet Airlines and low-cost carriers ATA Airlines and America West Airlines reported the largest operating loss margins. ExpressJet has added point-to-point service under its own brand in addition to the regional service it provides under contract for Continental. No other carriers reported operating loss margins in the second quarter.
While the news is good for the first half of 2007, IATA predicted that 2008 will be a tough but profitably year when the world’s airlines are forecast to make $7.8 billion in net profit. The expectations are strongest in the North American market, said IATA, owing to the disciplined capacity growth. IATA said Asian Pacific carriers have increased their capacity by 42 percent to Europe’s 29 percent and North America’s 11 percent. TheStreet.com quoted JPMorgan analyst Jamie Baker saying U.S. carriers would experience a "profitable recession 2008 but are far stronger than they entered the 2001 recession.”
The group of 21 selected mainline, low-cost and regional carriers reported a system operating profit margin of 8.8 percent in the second quarter of 2007, the highest profit margin since 2000 and the first time since 2000 that airlines have had five consecutive profitable quarters. The profit margin is based on operating revenue. It was also the fifth consecutive quarter with a profit margin for the group after a loss margin in the first quarter of 2006. The industry’s largest airlines, the network carriers, were the only group to report a higher profit margin in the second quarter of 2007 than in the same period in 2006. The network group reported an operating profit margin of 9.2 percent, it’s highest since 2000.
The regional carriers continue to report the highest unit revenues but their second quarter revenue of 14.9 cents per ASM was down 0.3 cents per ASM from the second quarter of 2006. The low-cost carriers reported unit revenues of 10.4 cents per ASM.
The highest unit revenues were reported by network carrier US Airways and regional carriers Comair and American Eagle Airlines. The lowest unit revenues were reported by low-cost carriers ATA, JetBlue and Spirit Airlines.
The regional carriers reported the highest unit costs in the second quarter at 14.1 cents per ASM. Network carriers’ unit costs were 13.4 cents per ASM followed by the low-cost carriers at 9.6 cents per ASM. Only the low-cost group carriers reported lower unit costs in the second quarter of 2007 than in the second quarter of 2006, reporting a decrease of 0.1 cents per ASM.
The carriers with the highest unit costs were regional airlines Comair and American Eagle and network airline US Airways. Pinnacle Airlines enjoyed the the lowest unit costs along with JetBlue and Spirit.
The regional airlines reported the highest average passenger yield at 18.8 cents per revenue passenger-mile (RPM). The regional carriers and the low-cost group reported lower passenger yields than in the second quarter of 2006 while the network carriers at 12.9 cents per RPM reported year-to-year yield gains.
The network group’s profit margin of 9.2 percent in the second quarter was a 1.7 percentage point improvement from the 7.5 percent profit margin in the second quarter of 2006. The seven network carriers reported a combined operating profit of $2,406 million in the second quarter for the group’s fifth consecutive quarterly profit margin. In the second quarter of 2006, the seven network carriers’ operating profit was $1,916 million.
The low-cost group’s profit margin of 8.1 percent in the second quarter was a 2.7 percentage point decrease from a 10.8 percent profit margin in the second quarter of 2006. The seven carriers reported a combined $451 million operating profit in the second quarter of 2007.
The top operating profit margins were reported by network carrier US Airways and low-cost carriers Southwest Airlines and AirTran Airways. The network carriers, with a gain of 0.4 cents per available seat-mile (ASM) to 14.8 cents per ASM, were the only group to report higher unit revenues in the second quarter of 2007 compared to the second quarter of 2006.
The top passenger revenue yields were reported by regional carriers American Eagle, Comair and Atlantic Southeast Airlines. The lowest passenger revenue yields were reported by low-cost carriers JetBlue, Spirit and America West. US Airways reported the highest passenger yield of any network carrier.