Special Feature - Airline Economic Analysis 2016/2017
Domestic CASM Breakdown by Airline – Value Carriers, Q2 2015/2016
Airline Economic Analysis 2016/2017
In recent years, the airline industry in the United States produced improved balance sheets, increased valuations, and generated 13 consecutive quarters of profitability with operating margins near or above 10% — all testament to the quality and discipline of the management of this hyper-competitive industry.
But just as domestic airlines are enjoying record profits, a patch of turbulence ahead could threatens to push them back into the price and capacity wars of years ago. The most compelling piece of evidence that cracks are developing in the industry’s outwardly successful façade is the recent slide in quarterly revenue among US legacy carriers.
The culprit behind the decline is a familiar one: too much capacity coming online at discount prices when the economy is still growing in the low single digits. This trend has been particularly evident when it comes to routes between the US and Latin America, where value carriers have been aggressively expanding.
Luckily overall system costs have continued to decline for both network and value carriers with fuel being the primary driver. However, other key costs categories are likely to increase in coming quarters. Many carriers have inked new labor contracts during this highly profitable cycle and the effects of these agreements have yet to filter through to the numbers. Also some older aircraft fleets have a wave of life limited parts (LLPs) coming due on the horizon. Additionally, while jet fuel prices have remained lower relative to past years, the specter of higher prices looms in the distance after OPEC announced production cuts at the end of 2016.
Going into 2017, carriers will need to carefully manage a “right-sized” capacity environment and also make wise investment decisions to help differentiate their product and improve customer experience to capture market share. Fleet upgrades for newer, more efficient aircraft aid in this and also provide a counter to future fuel price escalation.
About the Report
In its 8th year, the 65-page report covers a range of aviation-specific industry data, including: CASM/RASM comparisons, stage-length adjusted and long-term trends, fuel prices, break-even load factors, and ancillary revenues. It also includes global capacity growth by region and a comparison of CASK/RASK for a select set of global carriers.
The report includes analyses on:
- Revenue per available seat mile (RASM)
- Passenger yield
- Ancillary revenue
- Stage-length adjusted revenue per available seat
- Cost per available seat mile (CASM)
- Labor cost
- Jet fuel costs and labor costs
- Profit margin data
- Break-even load factors
- US carrier capacity analysis
- International carriers: Revenue per available seat kilometer (RASK) and cost per available seat kilometer (CASK)
Related Oliver Wyman Insights
Go to the Archives