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Tue, May 15, 2007

Change Of Tune: Passenger Airlines Report Largest 4Q Profit Margin Since '99

BTS Releases Fourth-Quarter 2006 System Airline Financial Data

A group of 21 selected passenger airlines reported a system operating profit margin of 2.6 percent in the fourth quarter, down from the third quarter but the largest fourth-quarter profit margin for this group since 1999, the Bureau of Transportation Statistics (BTS) of the USDoT reported Monday in a release of preliminary data. The 21-carrier group consists of the seven largest network, low-cost and regional carriers based on operating revenue.

BTS, a part of the Research and Innovative Technology Administration, reported that the profit margin in the October-to-December period was the third consecutive quarter with a profit margin for the group. The group of regional carriers reported an operating profit margin of 10.0 percent, the network carrier group reported a 1.7 percent margin and the low-cost carriers reported a 2.7 percent profit margin. Operating margin measures profit or loss as a percentage of the airline’s total operating revenue.

This release consists of domestic plus international, or system, financial reports for the airlines.

The network group’s profit margin of 1.7 percent in the fourth quarter was a 9.0 percentage point improvement from the 7.3 percent loss margin in the fourth quarter of 2005. The seven network carriers reported a combined operating profit of $393 million in the fourth quarter for the group’s third consecutive quarterly profit margin. In the fourth quarter of 2005, the seven network carriers’ operating loss was $1.6 billion.

The low-cost group’s profit margin of 2.7 percent in the fourth quarter was a 0.9 percentage point improvement from a 1.8 percent profit margin in the fourth quarter of 2005. The seven carriers reported a combined $131 million operating profit in the fourth quarter of 2006.

The regional group’s profit margin of 10.0 percent profit margin in the fourth quarter was a 1.1 percentage point improvement from the 8.9 percent profit margin in the fourth quarter of 2005. The seven regional carriers reported a $245 million operating profit in the fourth quarter of 2006.

The top operating profit margins were reported by regional carriers Atlantic Southeast Airlines, Pinnacle Airlines and American Eagle Airlines. US Airways reported the top profit margin of the network carriers. Low-cost carriers America West Airlines, Frontier Airlines, ATA Airlines and Spirit Airlines reported the largest operating loss margins. The only other carriers to report operating loss margins were network carriers Delta Air Lines and Alaska Airlines.

America West and US Airways report financial data separately because the carriers hold two operating certificates despite the merged business operations. They will file a merged financial report beginning with the second quarter of 2007.

Network carriers operate a significant portion of their flights using at least one hub where connections are made for flights on a spoke system. Low-cost carriers are those that the industry recognizes as operating under a low-cost business model, with fewer infrastructure costs and greater expectations of productivity. Regional carriers provide service from small cities, using primarily regional jets to support the network carriers’ hub and spoke systems. The selected groups consist of the seven carriers in each group with the highest reported revenue in the most recent 12-month period.

All three carrier groups reported higher or the same unit revenues compared to the fourth quarter of 2005 with the network airlines registering the biggest gains at 0.7 cents per available seat-mile (ASM). The regional carriers reported the highest unit revenues in the fourth quarter at 15.0 cents per ASM. Network carriers’ unit revenues were 13.5 cents per ASM followed by the low-cost carrier group at 9.8 cents per ASM.

The highest unit revenues were reported by regional carriers Comair and American Eagle and network airline US Airways. The lowest unit revenues were reported by low-cost carriers JetBlue Airways, Spirit and ATA.

Only the low-cost group reported higher unit costs than in the fourth quarter of 2005, reporting an increase of 0.3 cents per ASM. The regional carriers reported the highest unit costs in the fourth quarter at 13.5 cents per ASM. Network carriers’ unit costs were 13.2 cents per ASM followed by the low-cost carriers at 9.5 cents per ASM.

The carriers with the highest unit costs were network airline US Airways and regional airlines Comair and American Eagle. The carriers with the lowest unit costs were low-cost carriers JetBlue, Southwest Airlines and ATA.

The regional airlines reported the highest average passenger yield at 19.7 cents per revenue passenger-mile (RPM) but the regionals were the only group to report lower passenger yields than in the fourth quarter of 2005. The network carriers at 12.3 cents per RPM and the low-cost carriers at 12.1 cents per RPM both reported yield gains over the fourth quarter of 2005. Passenger revenue yield measures passenger revenues against total travel by dividing passenger revenues by RPMs.

The top passenger revenue yields were reported by regional carriers American Eagle, Comair and Atlantic Southeast. The lowest passenger revenue yields were reported by low-cost carriers JetBlue, Spirit and Frontier. US Airways reported the highest revenue yield of any network carrier.

FMI: www.transtats.bts.gov/Fields.asp?Table_ID=295

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