US airlines report stronger passenger traffic growth in October

Passenger traffic

Global air traffic volumes slowed down in 1Q14, but picked up again in the second and third quarters. US airlines performed better than airlines in other regions, starting the fourth quarter on a positive note. In the US, mainline revenue passenger miles (or RPM) increased by 3.8% year-over-year in October, supported by a 3.1% increase in capacity in both months.

The rate of growth increased in October compared to 3.5% and 3.6% in the previous two months. RPM, also called airline traffic, measures demand for air transport and is calculated as number of revenue passengers multiplied by the total distance traveled.

According to the International Air Transport Association (or IATA), growth in worldwide air transport slowed to 5.3% year-over-year in September compared to August, when air travel increased by 6.3%.

US airlines report stronger passenger traffic growth in October

RPM’s effect on yield

Increased RPM is positive for an airline, meaning more passengers are using their services. This results in topline growth, provided the yield also increases. Yield is another airline indicator that we will discuss in part seven. Among the six major US airlines that account for ~78% of the country’s domestic market share by RPM, JetBlue (JBLU) had the highest mainline domestic RPM year-over-year growth of 10.48% in October 2014. Alaska (ALK) followed with 9.36%, Delta (DAL) with 9.35%, Southwest (LUV) with 4.40%, American (AAL) with 1.28%, and United (UAL) with -0.46%.

For more details on overall traffic growth, including domestic and international traffic in October for all these airlines, refer to US airlines increase capacity in October to meet growing demand. Also, investing in transportation ETFs such as the iShares Transportation Average ETF (IYT) provides exposure to some of the top airline companies.

To support the improvement in RPM, companies should add more seats or improve their capacity utilization. An available seat mile (or ASM) measures airline capacity, and load factor measures capacity utilization. Both these indicators will be discussed in detail in parts five and six.