The global airline market’s key revenue drivers and profitability

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Sep. 19 2014, Updated 9:00 a.m. ET

Global airline volume, capacity, and load factor

According to IATA (or the International Air Transport Association), the global airline industry passenger volume and capacity increased by 5.3% year-over-year in July 2014. Freight volume increased by 5.8%. In July load factor (or capacity utilization) for passengers was 82.3%, and for freight, it was 44.4%.

As in the table above, growth in capacity in North America was 3.3%, lower than in other regions. Passenger volume increased only by 3.6% compared to 9% in the Middle East and 6% in Asia Pacific.

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But load factor of North American airlines was 87.1% in July, the highest among airlines in all other regions and higher than the global utilization of 82.3%, reflecting its efficiency in utilizing existing capacity. Since increased efficiency contributes towards higher profitability, this could be one of the reasons for higher operating profit and net profit of North American airlines.

North American airlines drive the global industry’s profitability

Airlines across the globe have been improving their financial performance as indicated by the increasing profitability in 2Q14 (or the second quarter of 2014). As reported by IATA, the operating profit and net profit of 50 airline companies across the world have increased in the second quarter.

This was driven by airlines in the North American region that have outperformed their peers from other regions. But weakness in cargo revenue and rising cost pressure—due to depreciating currency, especially in China—have negatively impacted Asia Pacific airlines.

Operating profit of the 50 selected companies increased from $5,822 million in 2Q13 to $8,233 million in 2Q14. Net profit increased from $1,936 million to $5,166 million.

Out of the 50, 14 were North American airlines whose operating profits increased from $3,686 million in 2Q13 to $5,994 million and net profits increased from $1,932 million to $3,724 million.

Top airlines in North America—which include Delta (DAL), United (UAL), American (AAL), Southwest (LUV), and JetBlue (JBLU)—have shown significant improvements in efficiency and profitability in 2Q14.

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