Big Six Capacity, Traffic Grow In 2004

BoeingBoy

Veteran
Nov 9, 2003
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Air Transport

Big Six Capacity, Traffic Grow in 2004

Aviation Week & Space Technology
01/17/2005, page 408

David Bond
Washington

2004 traffic data look good, but the U.S. network airlines remain mired in low yields, high costs and red ink

The Ordeal Continues

When are traffic and load-factor increases not good news for airlines? When passengers aren't paying enough and costs are too high. Like in 2004.

Traffic data from the six big U.S. network airlines make 2004 look like the year everyone in the industry hoped it would be in the months after the September 2001 terror attacks. With increases across the board, the slimmed-down Big Six surely would be in a position to earn their first profits after three years of staggering losses. But these carriers remain far from breakeven as they begin this week to report financial results for the past year.

As far as they go, the traffic numbers look terrific (see table). Each of the Big Six--American, Delta, United, Northwest, Continental and US Airways, the so-called legacy carriers--increased capacity last year over 2003, from 3.1% (Northwest) to 8.8% (Delta). Each increased traffic even more, at rates between 5.9% (US Airways) and 11.1% (Continental). Thus each carrier's load factor--a measure of how full the average flight was--increased to levels that would just about have guaranteed a profit in past years. The lowest was 74.8%, at American and Delta.

HALF OF THE BAD news is in the Air Transport Assn.'s compilation of yields, published monthly. Computing revenue per passenger mile from reports of eight member airlines--the Big Six plus America West and Alaska Airlines--the ATA reported reductions in domestic yields from 2003 levels in 10 of the first 11 months of 2004. There was a 0.9% increase in March, but the 11-month decrease was 3.8%.

The other half of the bad news is costs, including operating expenses the carriers still are trying to reduce, but especially fuel costs that ballooned during the past year. Both the yield and cost problems were well publicized in 2004, and no one will be surprised when it turns out that they robbed the airlines of profit again in the fourth quarter.

Unlike in domestic service, yields increased throughout 2004 on international routes across the Atlantic and the Pacific, and during the first half of the year in Latin America as well. Attracted by the relative absence of competition from low-cost carriers, whose reduced fares have depressed yields within the U.S., each of the Big Six increased international more than domestic capacity, in some cases by wide margins. And they were rewarded: for each, percentage gains in international traffic outstripped domestic.

The 2004 traffic data yield a few passages as well. United, the largest airline until American acquired TWA in 2001 and second-largest since then, measured by capacity, dropped to No. 3 last year, passed by Delta. For years, Delta has been largest in number of passengers carried, by a wide margin.

Continental became the first of the Big Six to reach pre-Sept. 11, 2001, traffic levels, surging 11.1% from 2003 to 65.7 billion revenue passenger miles, 2.3% more than in 2000. And United and US Airways, the two Big Six members in Chapter 11 bankruptcy protection, further established themselves as the carriers that won't come all the way back. US Airways' capacity was 20% below 2000 and its passenger volume was less by more than 30%. United was down 17.7% and 16.7%, respectively.

Although US Airways followed the same pattern as its Big Six competitors, it got less out of it than the others. It grew only 0.4% in its domestic capacity and put everything into international expansion, increasing 13.2%. This barely paid off--international traffic was up only 13.3% for the year.

The Long Road Back
2004 2003 Change 2000 Change

American
Capacity 173.8 164.8 5.50% *161.0 8.00%
Traffic 130 120 8.30% *116.6 11.50%
Load Factor 74.80% 72.80% +2.0 pts *72.4% +2.4 pts
Passengers 91.6 88.8 3.10% NA

Delta
Capacity 146.1 134.4 8.80% 155 -5.70%
Traffic 109.3 98.7 10.80% 113 -3.30%
Load Factor 74.80% 73.40% +1.4 pts 72.90% +1.9 pts.
Passengers 110 104.5 5.30% 119.9 -8.30%

United
Capacity 144.5 135.9 6.40% 175.5 -17.70%
Traffic 114.5 103.9 10.30% 126.9 -9.80%
Load Factor 79.20% 76.40% +2.8 pts 72.30% +6.9 pts.
Passengers 70.8 66 7.20% 85 -16.70%

Northwest
Capacity 91.4 88.6 3.10% 103.4 -11.60%
Traffic 73.3 68.5 7.10% 79.1 -7.30%
Load Factor 80.20% 77.30% +2.9 pts 76.50% +3.7 pts
Passengers 55.4 51.9 6.80% 58.7 -5.60%

Continental
Capacity 84.7 78.4 8% 86.1 -1.60%
Traffic 65.7 59.2 11.10% 64.2 2.30%
Load Factor 77.60% 75.50% +2.1 pts 74.50% +3.1 pts
Passengers 42.7 40.6 5.20% 46.9 -9%

US Airways
Capacity 53.2 51.5 3.40% 66.5 -20%
Traffic 40 37.7 5.90% 46.8 -14.50%
Load Factor 75.10% 73.30% +1.8 pts 70.40% +4.7 pts
Passengers 41.5 41.3 0.60% 59.8 -30.60%

*Data do not include operations of TWA, acquired in 2001. Traffic in billions of revenue passenger miles. Capacity in billions of available seat miles. Passengers in millions. NA: not available. Source: Company reports
 
David Bond (AW&ST) said:
Thus each carrier's load factor--a measure of how full the average flight was--increased to levels that would just about have guaranteed a profit in past years.
[post="239837"][/post]​
It's statements like this that only serve to confuse people. The carriers could have had load factors of 100% during the 1990s. Full planes do not equal profitability. Largely empty planes to not equal losses.

I realize that Mr. Bond is using editorial shorthand, but it's really doing a disservice in that instance.