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16 May, 2014

U.S. airline travel forecast to hit six-year high this summer

WASHINGTON–(BUSINESS WIRE)-May 15, 2014-Airlines for America (A4A), the industry trade organization for the leading U.S. airlines, today delivered its Summer Air Travel Forecast and first-quarter 2014 results for U.S. passenger airlines, which achieved strong operational performance and modest profitability in the face of one of the harshest winters in memory.

A4A projects summer 2014 air travel to rise to its highest level in six years, with a record number of passengers traveling internationally on U.S. carriers. Approximately 210 million passengers (2.28 million per day) are expected to fly U.S. airlines from June 1 – August 31, up 1.5 percent from 2013. This includes 29.9 million travelers (325,000 per day) on international flights – an all-time high. Published airline schedules show Canada, Mexico, the United Kingdom, Germany and Japan, respectively, as the top five nonstop destinations from the United States.

“It’s a great time to fly, as air travel remains one of the best consumer bargains in America, given its superior speed and affordability,” said John Heimlich, A4A Vice President and Chief Economist. “U.S. airlines are well prepared to accommodate the increased travel demand in the summer months by adding seats and continuing to make customer-focused investments in their product.”

Improving Finances Benefiting Customers, Employees, Investors and the Overall U.S. Economy

During the first quarter of 2014, nine publicly traded U.S. passenger carriers collectively reported a Generally Accepted Accounting Principles (GAAP) net profit of $401 million, resulting in a 1.1 percent net profit margin, improved from a collective net loss of $552 million during the same period in 2013. Operating revenues rose 3.7 percent year-over-year due in large part to a 1.1 percent increase in the number of air travelers, the equivalent of an additional 21,000 passengers per day. Fuel remained the largest and most volatile cost for airlines, accounting for 33 percent of overall operating expenses.

Despite entering 2014 with approximately $72 billion of debt and coping with some of the worst winter weather on record, modest financial progress enabled carriers to continue significant levels of reinvestment to further enhance the customer experience. First-quarter capital expenditures for the nation’s airlines totaled $3 billion, on track to meet the $12 billion in reinvestment expected for the full year. Advancements include 1,751 new aircraft, of which 255 are scheduled for delivery in 2014 or the equivalent of roughly one aircraft received every weekday of the year.

“The modest margins are enabling airlines to shore up their balance sheets while accelerating reinvestment in people, products and technologies that enhance the overall travel experience,” said Heimlich. “In the first quarter, airlines did a great job meeting the needs of their customers despite facing severe winter weather, including two of the worst aviation weather days ever recorded.”

Heimlich noted that, while U.S. airline finances are steadily improving, the industry still faces significant financial challenges, including paying down debt, pursuing investment-grade credit and seeking margins on par with or better than the S&P 500 average.

1Q 2014 Financial Summary:

  • Net profit: The $401 million profit, or $484 million excluding one-time items, reflects the results of nine U.S. passenger airlines – Alaska Airlines, Allegiant Air, American Airlines, Delta Air Lines, Hawaiian Airlines, JetBlue Airways, Southwest Airlines, Spirit Airlines and United Airlines.
  • Operating Revenues and Expenses: While revenues increased 3.7 percent year-over-year, fuel costs declined 4.3 percent. Lower fuel costs largely offset sharp increases in labor, airport-related and aircraft costs. Jet fuel remains the U.S. airlines’ largest and most volatile expense. Every penny increase per gallon annually costs airlines an additional $180 million.
  • Capital Expenditures (CapEx): U.S. airlines reinvested $3 billion in the product and customer experience during the first quarter, which equates to about $18 per enplaned passenger. Airline CapEx rose 141 percent from 2010 to 2013; a total of $12 billion of reinvestment is expected in 2014.

1Q 2014 Operational Performance

  • Customer Service: U.S. passenger airlines’ operational performance remained strong, improving markedly from January to February to March as meteorological conditions improved. According to the Department of Transportation (DOT), from January to March U.S. carriers improved the rate of completed flights from 93.46 percent to 98 percent; the on-time arrival rate increased from 67.72 percent to 77.6 percent and the share of passengers having their bags properly handled rose from 99.4 percent to 99.6 percent.

Federally Imposed Taxes on Air Travel Continue to Rise

Four decades ago, taxes and fees accounted for less than one tenth of the price of an airline ticket. Today, the amount has skyrocketed to nearly a quarter of the price or $62 on a typical $300 roundtrip domestic ticket. That amount is scheduled to rise again in July to $63 when the Transportation Security Administration’s passenger tax increases to $5.60 on a one-way trip. It could go even higher if other taxes proposed by the Obama administration become law. Adding insult to injury, DOT’s Full Fare Advertising Rule enables the government to hide the outsized, ever-increasing amount that airline customers pay in government-imposed levies by burying the charges in the advertised price of a ticket.

“Since travel is often optional for individual consumers and businesses, even the smallest increase in the total price of a ticket has a negative impact on travel decisions,” said Heimlich. “DOT’s Full Fare Advertising Rule dampens demand for air travel and harms the economic viability of our nation’s travel and tourism industry, which generates over $2 trillion in U.S. economic activity annually, by enabling the government to bury tax hikes in the advertised price of a ticket.”

A4A launched a campaign to Restore Transparency in Airfare Advertising Rules and encourages customers, airline employees, stakeholders and the general public to visit www.airfaretransparency.com and send a letter to the Administration and Members of Congress voicing their support for transparent airfares.