How Much Information Should Airline Investors Get?

America's top three airlines no longer agree on how much unit revenue information to give out.

Feb 19, 2014 at 9:30AM

As an investor, I almost always prefer to get more information rather than less from the companies I'm investing in. However, sometimes there is such a thing as too much information, even ignoring the obvious scenario where sensitive information could damage a company's competitive position.

Some of America's top airlines are struggling with this problem today. Just two months ago, all three big legacy carriers -- American Airlines (NASDAQ:AAL), United Continental (NYSE:UAL), and Delta Air Lines (NYSE:DAL) -- had the same monthly reporting practices. In the first week or two of each month, each one would report unit revenue results for the previous month as part of its monthly passenger traffic press release.


Delta is the only one of the top three U.S. airlines that still reports monthly unit revenue.

By contrast, each of the three carriers is going its own way now. Delta is continuing to report monthly unit revenue numbers. American is offering monthly updates to its quarterly unit revenue forecast. Meanwhile, United is no longer providing any monthly information about its unit revenue. Of these three reporting systems, American's seems the most investor-friendly because it provides the most useful information for investors.

The problem with monthly unit revenue
Monthly unit revenue statistics have been a critical piece of data for airline investors in recent years. A unit revenue measurement captures information about load factor (how full an airline's planes are) and yield (the average ticket price) in a single number. It therefore represents a great snapshot of an airline's revenue performance.

However, monthly unit revenue statistics suffer from one major problem: They tend to be overly sensitive to calendar shifts. This was self-evident in the last two months of 2013, when the timing of Thanksgiving pushed the two biggest return travel days from November into December.

This caused each of the top five U.S. airlines to experience unit revenue declines in November, with the exception of American Airlines. On the flip side, the top five airlines posted unit revenue gains between 9% and 15% in December, as they benefited from the busy post-Thanksgiving period. Calendar shifts had an equally severe impact on comparisons in March and April, due to a change in the timing of Easter.

Trying out new practices
Thus, while monthly unit revenue statistics can be helpful for airline investors, they often require some interpretation. Delta has continued reporting monthly unit revenue results, figuring that it can add explanatory remarks when necessary to help investors understand any unusual dynamics. Earlier this month, the company reported that January unit revenue increased 5% year over year.


United no longer provides unit revenue information in its monthly traffic releases.

By contrast, United has gone cold turkey. In early January, the company informed investors that it would stop providing monthly unit revenue performance numbers going forward, although it continues to provide quarterly unit revenue guidance in its investor updates, which are typically released near the beginning and end of each quarter.

American Airlines is trying a different tack. On multiple occasions, CEO Doug Parker and President Scott Kirby have cautioned investors about the inherent variability of monthly unit revenue reports. Last month, they announced that going forward, American will provide initial guidance for quarterly unit revenue on its earnings call, which it will then update each month as more information becomes available.

For example, on American's earnings call last month, the company projected that Q1 unit revenue would rise 2%-4%. The company then reiterated that forecast last week in its January traffic release.

Which is best?
Personally, I think American Airlines' new reporting system is the most useful for investors. On the one hand, while Delta is providing more information, a lot of the monthly unit revenue changes are just noise. On the other hand, United will keep investors guessing until the last minute about its revenue performance, which is probably not a good thing. As an investor, it's never fun to be blindsided!

New American Livery

American Airlines' new system is the most useful for investors. Source: American Airlines.

While American is now providing less information than Delta, the information it does provide is more useful. American's monthly updates to its quarterly unit revenue forecast will give investors a good idea of where it's going.

By contrast, Delta investors may be getting lots of information from management, but they are at risk of getting stuck in the weeds by focusing on the last month's performance rather than what's ahead. American's new reporting system appears to strike the optimal balance between keeping investors informed and keeping them focused on the big picture.

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