With jet fuel prices continuing to climb, profitability for US commercial carriers declined in the first half of 2018, according to Washington DC-based Airlines for America (A4A).
Pre-tax profit margins fell to 7.2% in 1H from 11.5% during the year-ago period, as fuel expenses increased 31%, airport expenses rose 7.1% and labor costs grew 5.7%.
While 1H operating revenues rose 6.5%, operating expenses jumped nearly twice as fast at 11.6%. At 7.2%, US passenger airlines’ profit margins were below the US corporate average and well below companies like Starbucks (14.9%), Apple (25.7%), Disney (26.1%) and McDonald’s (37.2%).
“Rising jet fuel prices have been a headwind this year, which is a theme affecting decisions being made across the industry,” A4A VP & chief economist John Heimlich said, noting the $2.09 per gallon systemwide price paid by US carriers is the highest since 2014.
In addition to sharply higher jet fuel costs, A4A faulted a “challenging operating environment,” including airport power outages, construction, major storms and chronic understaffing at air traffic control facilities for the reduced profitability of US airlines. One bright spot was cargo revenue, which grew 17.7% year-over-year (YOY), which Heimlich credited to a strong global economy and continued growth in e-commerce.
ADVERTISING, MOUSE OVER FOR AUDIO
Despite the challenging operational environment in 2018, US airlines reported strong operational metrics for the first quarter of 2018, including the lowest rate of involuntary denied boardings on record, which dropped to 1.2 per 100,000 passengers from 6.2 per 100,000 passengers in 1Q 2017. The on-time arrival rate from January to May also improved to 80.12% from 79.17% YOY. The flight completion factor, however, dipped slightly to 98.05% in 1Q 2018 from 98.47% in the year-ago period.
A4A based its data on reports from Alaska Airlines, Las Vegas-based LCC Allegiant Air, Dallas/Fort Worth-based American Airlines, Atlanta-based Delta Air Lines, Hawaiian Airlines, New York-based LCC JetBlue Airways, Dallas-based Southwest Airlines, Florida-based ULCC Spirit Airlines and Chicago-based United Airlines.
Concurrent with its six-month financial evaluation, A4A projected a 3.5% YOY increase in passengers over the seven-day Labor Day travel period (Aug. 29-Sept. 4), with a total of 16.5 million passengers on scheduled service on US airlines. US airlines will meet the demand by offering 2.76 million seats per day, A4A said, an increase of 92,000 each day over last year’s scheduled service. A4A expects 2.36 million passengers per day, 79,000 passengers higher from 2017 estimates.
