With 2019 over and done with, it is worth analyzing the relative performance of the major legacy carriers in the US. Overall, the year was a very positive one for traditional North American airlines, most of them reaching new record profits. We took a look at key trends impacting Delta, American Airlines and United, which together make over 50% of the market, also analyzing key operational metrics. Of special mention is Delta, which outperformed its competitors in essentially all metrics and was the most profitable airline of all.
Key market trends
All three major carriers experienced strength in passenger demand, which has driven load factor higher along with profits. Lower fuel costs have also positively contributed to record profits: American’s fuel costs per gallon went down by 7% (to 2.07), United’s were at 2.09, 7.1% lower. Interestingly Delta’s average cost per gallon was the lowest and stood at 2.04 cents, highlighting a good fuel hedging strategy.
The 737 MAX
With the exception of Delta, the other airlines felt the impact of the grounding, leading to flight cancellations and lower profitability. American canceled approximately 10,000 flights in the fourth quarter of 2019 alone and has removed all MAXs from flights until June 3rd, 2020. The company will continue to asses this timeline. With no 737 MAX jets in its fleet, Delta did not feel the impact of the grounding, which has contributed to its relatively better results in comparison to the competition.
Cargo in decline
We have observed the trend of cargo decline throughout the entirety of 2019. This was likely driven by the US-China trade war and the spillovers resulting from it. AA Cargo revenue took a severe hit and went down by 18.3% YoY, with a 15.6% decline in volume. Interestingly, United noted only a 4.7% decline in cargo revenue, the lowest from all carriers. Delta’s cargo revenue declined by 13%.
Comparing key metrics
We took a look at the most important metrics in the aviation industry that reflect operational efficiency as well as revenue management.
American Airlines carried 215 million passengers in 2019 (up 5.6%), while United carried 162 million, 2.6% higher than a year earlier. Delta Air Lines carried an all-time record of 204 million customers in 2019, 6% more than the prior year.
The passenger load factor stood at 84.6% for American Airlines, 2.6% higher than a year earlier. United’s load factor was at 84%, only 0.4% higher year on year. Delta’s was 86.3% 0.8% up.
Cost per available seat mile, or CASM: American Airlines had a CASM of 14.98 cents (11.46 without special items and fuel). United CASM was at 14,11 cents and as low as 10.53 after excluding special items and fuel. Delta Airlines had the second-highest CASM of 14.67, however, after excluding special items and fuel, it was the lowest at 10.52 (mainly due to a billion-dollar profit-sharing announced by the airline). So in reality, Delta has proven to have the most cost-efficient structure from all three legacy carriers.
Revenue available per seat mile, or RASM: American Airlines’ Passenger Revenue per ASM was at 14.74 cents, with a yield of 17.41 cents. United’s Passenger RASM was 13.90, while the average yield per available seat mile was at 16.55. These numbers for Delta stood at 15.35 cents and 17.79 cents accordingly. In fact, Delta not only was the most efficient, but also the most profitable airline from all three.
Despite not being the biggest airline in terms of passenger numbers, Delta Air Lines definitely stands out as a leader in the market across all sectors including load factor, CASM and yield, and total profits. We wrote a more detailed article about Delta’s performance in 2019, however, it is still worth noting that in December quarter 2019 the airline recorded a pre-tax income of $1.4 billion with net income of $1.1 billion. Whole year operating income was at $6.618 billion, a 14.07% margin, the highest from all three airlines.
American Airlines ended 2019 with the strongest operational quarter on record. The airline recorded an operating income of $729 million (27.6% up year on year). Full-year operating profits reached $3.07 billion with an operating profit of 6.3%. In 2020 American intends to focus on operational excellence, efficient and profitable growth in high-revenue markets that produce at or above average unit revenues. Example markets include Dallas-Fort Worth and Charlotte. Generating significant free cash flow to improve the company’s balance sheet is also a focus of the airline.
United’s fourth quarter of 2019 resulted in $641 million net income, Reported full-year operating income of $4.3 billion was very similar to that of American Airlines. However, the operating margin of 9.9% placed in the middle between the two competitors. In 2020 we would expect to see United focusing on increasing their revenue growth and launching new routes from its most profitable hubs.
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