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Passenger Yields for Airline Industry Continued to Fall in 3Q16

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Passenger yields for the airline industry

Passenger yields for the airline industry are calculated as passenger revenue divided by RPM (revenue passenger miles). They can also be calculated as passenger revenue per available seat mile divided by load factor. The yield gives us a better idea of the efficiency and profitability of airlines.

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3Q16 performance

Passenger yields for the airline industry continued to fall in 3Q16. Spirit Airlines (SAVE) saw the highest falling yield of -8.0% YoY (year-over-year) to 11.1 cents. That’s the lowest among the seven carriers covered in this series.

Yields for both JetBlue Airways (JBLU) and United Continental (UAL) fell 6.0% YoY to 13.2 cents and 14.8 cents, respectively. Yields for Delta Air Lines (DAL), Southwest Airlines (LUV), and Alaska Air Group (ALK) fell 5.0% YoY to 15.4 cents, 14.5 cents, and 13.8 cents, respectively. American Airlines’ (AAL) yield fell just 1.0% to 15.3 cents.

Trend analysis

As you can see in the above graph, passenger yields for most carriers have been on a declining trend since the second quarter of 2015. The main reason behind falling yields is falling airfares. As we’ve already seen, excess capacity leads to airlines reducing fares to attract more customers. According to research by Expedia (EXPE), airfares fell 5.0% in 2015 compared to 2014. They’ve continued to fall in 2016.

Another reason behind lower yields is that all airlines have grown their capacities across the markets, which has led to pressure on utilization, thus impacting yields. This trend is expected to reverse since airlines are expected to slow down capacity growth in the coming quarters.

You can get exposure to travel stocks by investing in the iShares Transportation Average ETF (IYT). IYT invests 22.0% of its portfolio in airlines. In the next part, we’ll look at fuel costs for the airlines in our review.

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