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US Airlines Achieve Best Margins in a Decade

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U.S. airline performance was strong enough in the past year to raise the question: Is the airline business becoming a “regular” business, with sustainable profits?

According to Oliver Wyman’s 2014 Airline Economic Analysis, both network and value carriers achieved their best margin performance of the past decade, the result of healthy demand, stable fuel prices, capacity restraint and an ample supply of slim-line seats. Strong revenue growth was accompanied by flat costs, as higher labor costs were offset by lower fuel costs. Oliver Wyman’s release of this report coincides with the Raymond James Transportation Conference on November 6.

Oliver Wyman Partner Bob Hazel, lead author, points out that, “Over the past decade, every major airline cost component, except fuel, has been restructured, renegotiated, or reduced through the use of technology. Equally important, the U.S. airline industry has evolved into a smaller number of larger carriers. Although the airline business will always be subject to cyclical demand, fuel spikes, and other risks, it has certainly moved in the right direction.”

The increase in domestic revenue per available seat mile, or RASM, during the year ending in June 2014 was unusually strong, outpacing the increase in international RASM and halting the trend of network carriers relying largely on their international operations for revenue growth. Although value carriers continued to earn higher margins on domestic service, network carriers made substantial progress in turning their historically low-margin or loss-making domestic operations into profitable businesses.

The report includes extensive aviation data analysis, with more than 55 charts based on data.

Other analyses in the report include:

  • Cost per available seat mile (CASM), RASM and margin comparisons across carrier groups and individual carriers
  • Fluctuation of fuel price on CASM
  • Comparisons of direct CASMs for narrow-body aircraft operated by different carriers
  • Seat density choice and implications on break-even fares and CASM profiles
  • Revenue growth drivers including capacity, load factors, cargo and ancillary revenue
  • Regional variations in demand and capacity growth
  • Global traffic flows and changes in fleet deployment
  • Value carrier capacity changes around the world
  • RASK (revenue per available seat kilometer) and CASK (cost per available seat kilometer) for international carriers

The full report may be found here: Oliver Wyman Airline Economic Analysis 2014

About Oliver Wyman

Oliver Wyman is a global leader in management consulting. With offices in 50+ cities across 25 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation. The firm’s 3,000 professionals help clients improve their operations and risk profiles, and accelerate their organizational performance to seize the most attractive opportunities. Oliver Wyman is a wholly owned subsidiary of Marsh & McLennan Companies [NYSE: MMC]. For more information, visit Follow Oliver Wyman on Twitter @OliverWyman.

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