America's Top Airlines Ended 2013 With a Bang!

Investors won't find much to complain about in airlines' December unit revenue numbers.

Jan 14, 2014 at 5:59PM

Most of the top U.S. airlines experienced unit revenue declines in November, due to a calendar shift that pushed the Sunday and Monday following Thanksgiving (two extremely strong revenue days) into December. As a result, airline investors expected a strong bounce-back performance in December -- and the airlines delivered.

Airline

December Unit Revenue Change

December Capacity Change

American Airlines (NASDAQ:AAL)

Up 9.0%

Up 1.1%

Delta Air Lines (NYSE:DAL)

Up 10.0%

Up 3.8%

Southwest Airlines (NYSE:LUV)

Up 14.0%-15.0%

Up 3.4%

United Continental (NYSE:UAL)

Up 11.5%-12.5%

Up 0.5%

US Airways

Up 12.0%

Up 3.6%

Source: Airline press releases. 

A strong holiday season
Double-digit unit revenue gains were the norm last month in the airline industry, surprising even airline executives. United Continental's management stated, "The company's December PRASM growth was greater than originally expected due to strong yields and traffic throughout the month." Delta also recently updated its guidance, telling investors to expect a Q4 operating margin of 8%-9% (compared to 7%-9% previously).

Images

Southwest Airlines saw a big December unit revenue gain due to strong leisure demand.

This revenue performance indicates that the airlines were able to capture the benefit of the Thanksgiving calendar shift last month, but also that holiday period demand was very strong overall. It is telling that Southwest -- which is more leisure-oriented than the legacy carriers -- had the best result in December, after having the worst unit revenue result in November. This suggests that leisure demand was particularly robust.


Averaging out
The Thanksgiving calendar shift makes it confusing to interpret the airlines' November and December performances individually. However, taking the average of the airlines' November and December unit revenue changes creates a rough approximation of their overall performance for the two-month period. This enables a more useful comparison.

Airline

Combined November and
December Unit Revenue Change (Estimate)

American Airlines

Up 4.5%-5.5%

Delta Air Lines

Up 3.0%-4.0%

Southwest Airlines

Up 4.0%-5.0%

United Continental

Up 4.5%-5.5%

US Airways

Up 3.5%-4.5%

Source: Airline press releases, author's calculations.

These averages show very consistent mid-single-digit unit revenue gains across all of the top carriers. Delta may have been slightly off the pace (probably due to its high exposure to the weak yen) but the "race" was still very close.

These unit revenue gains should allow significant margin expansion for all of the airlines when they report Q4 results later this month. Most of the airlines are expecting low-single-digit increases for non-fuel unit costs, and jet fuel prices were similar or even lower than in 2012 during November and December. Slow cost growth and faster revenue growth naturally leads to higher margins.

Foolish bottom line
After an artificially weak November, the airlines had an artificially strong December. However, looking at the combined period -- which compensates for the Thanksgiving calendar shift -- it is clear that America's top airlines are doing very well indeed. The major carriers should report big Q4 earnings growth, as unit revenue growth is outpacing unit cost increases.

Indeed, barring any unforeseen complications, the U.S. airline industry will have a very strong 2014. However, investors should try to remain levelheaded, as sector valuations have skyrocketed in the last year or so. Soaring industry profitability could entice low-cost carriers to return to rapid growth in 2015, pressuring the industry leaders once again.

Discover our top stock for 2014!
There's a huge difference between a good stock, and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Adam Levine-Weinberg is short shares of United Continental Holdings. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers