Every Airline Is Watching This Metric Like a Hawk. You Should Be, Too.

Delta's aircraft were more than 86% full in May. Credit: Benjamin Beyers for The Motley Fool.

According to new data from the International Air Transport Association, or IATA, via CNN, the world's airlines average just $5.42 in profit per ticket, for a net profit margin of only 2.4%.

Think that sounds bad? You don't know the half of it. Cut-rate retailer Wal-Mart still earns 3.3% on the bottom line -- nearly a percentage point better than the average airline. No wonder some carriers are struggling.

What to do, especially now that overall capacity is shrinking the wake of big mergers? Fill more seats on every flight. As an investor, you can track this via a widely reported metric known as "load factor."

Busier skies mean more potential profit
To be fair, there's no perfect correlation between high load factor and high profits. Even a carrier that packs its aircraft sardine-tight could still fall victim to unexpected fuel, maintenance, or labor expenses. Or weather delays could cancel flights and cut overall capacity, crimping profits. Airlines suffer from unknowns like no other industry.

Yet this same randomness is what makes load factor such an important metric. Filling seats via smart marketing and affordable fares can reduce the sudden impact of bad luck. That's why some of the industry's best-performing carriers are also flying with very full planes right now.

Among the majors, Delta Air Lines (NYSE: DAL  ) flew its aircraft 86.5% full in May, up 1.9 percentage points year over year. Passenger revenue miles improved 7% over the same period. United Continental ranked second with an 85.3% load factor, up 0.9 points. Passenger revenue increased 1.2%. Finally, American Airlines parent AAR Corp. suffered a 0.3-point decline to 84%.

We don't yet have full data on the discounters, but JetBlue endured a year-over-year decline in April. In May, Southwest Airlines (NYSE: LUV  ) enjoyed an almost Delta-like gain of 1.8 percentage points to end with an 83.7% load factor. Passenger revenue miles improved 0.6% as a result, and that's despite a 5.6% decline in trips flown.

Foolish final thoughts
So far, 2014 is shaping up to be an interesting year for the global airline industry. The IATA estimates we'll see passengers spend an estimated $746 billion this year and take a record 3.3 trips. Both figures represent a huge opportunity for the carriers capable of filling their aircraft with premium fliers. Right now, to me, that looks like Delta. Do you agree? Which airline stock most interests you right now? Leave a comment below to let us know your take.

Warren Buffett just bought nearly 9 million shares of this company
Just because the Oracle of Omaha avoids airlines doesn't mean he's unwilling make a play on big machinery. To the contrary, one of his favorite stocks -- he just loaded up on 8.8 million shares -- rents a very specific and valuable piece of machinery for $41,000 per hour. (That's almost as much as the average American makes in a year!) An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click here to discover more about this industry-leading stock, and join Warren Buffett in his quest for a veritable landslide of profits!

Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2988248, ~/Articles/ArticleHandler.aspx, 8/30/2015 12:02:25 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Tim Beyers

Tim Beyers first began writing for the Fool in 2003. Today, he's an analyst for Motley Fool Rule Breakers and Motley Fool Supernova. At, he covers disruptive ideas in technology and entertainment, though you'll most often find him writing and talking about the business of comics. Find him online at or send email to For more insights, follow Tim on Google+ and Twitter.

Today's Market

updated 1 day ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:00 PM
DAL $43.94 Up +0.08 +0.18%
Delta Air Lines, I… CAPS Rating: ***
LUV $37.10 Down -0.21 -0.56%
Southwest Airlines CAPS Rating: ****