Assessing the key drivers of global airline industry growth

Teresa Cederholm - Author
By

Nov. 26 2019, Updated 9:22 p.m. ET

Growth in international markets

There was an overall increase in worldwide passenger traffic and capacity in August. Passenger capacity increase of 5.5% year-over-year and was driven by strong growth in the international market. Traffic and capacity increased at a higher rate (6.7%) in the international market during the month compared to (4.5%) growth in domestic traffic and (3.4%) domestic capacity.

Higher load factor

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The overall growth in demand (5.9%) was higher than supply. A higher rate of growth in demand versus supply is positive for the industry, as it results in better utilization of existing seats and a higher load factor during the month (83.9%). Higher utilization rates not only reduce capital investment but also increase cost efficiency, leading to increased profitability.

Yield remains weak

Apart from traffic, airline revenue is also affected by a rise or fall in yield (or the average fare paid per passenger per mile). Although global yield has remained weak due to weakness in Asia, U.S. passenger yield has improved in the second quarter of the year compared to the lower yield during the first quarter due to weather-related challenges.

Moreover, the U.S. also had the best load factor compared to other regions. This could be one reason for the higher profitability of North American airlines, since increased efficiency and higher yield translate into higher revenue and improved margins (see Part 7 of this series).

Airlines in the U.S., including Delta (DAL), American (AAL), United (UAL), Southwest (LUV), and JetBlue (JBLU), have recorded higher profitability in 2014. Some of these airlines are part of ETFs such as the iShares Transportation Average ETF (IYT) and the SPDR S&P Transportation ETF (XTN).

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