Airlines for America (A4A) said that, although extreme weather in the first quarter of this year nearly derailed financial results, the airline industry overall reported a profit in the first half of 2014.
The trade group based its findings on nine publicly traded airlines: Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit and United. Collectively, these airlines reported a net profit of $3.8 billion, up from $1.6 billion last year, and an operating margin of 5%, up from 2.1% last year.
This was due to a year-over-year increase in operating revenues of 6%. Margins improved in the first half due to a 2.4% drop in the cost for fuel, the airline industry’s largest expense, John Heimlich, A4A chief economist, told reporters Aug. 21. The industry’s 5% margin performance is similar to that reported by companies such as Wal-Mart, Whole Foods and Marriot, but much lower than freight railroad CSX or Disney. Overall, the industry’s 5% margin performance is about half of the S&P 500’s average, Heimlich said.
The breakeven load factor for the period between 2011-2013 is 79.8%, down from the 81.3% breakeven load factor of the 2000-2010 period, mainly due to lower fuel costs and the economy’s continuing recovery, Heimlich said.
However, the industry’s improving financial performance has attracted investors. Capital expenditures industry-wide are rising, as airlines invest in their onboard products. The nine airlines in A4A’s calculus invested $7 billion in product improvements this year. Additionally, the nine airlines are expected to take delivery of 317 aircraft, mostly narrowbodies, in 2014.
Demand for air travel has been rising as the US economy improves. Although the economy contracted in the first quarter mainly due to weather, in the second quarter the economy grew by a 4% annualized rate; the US has added more than 200,000 jobs per month for the last six months.