Unit revenue, or revenue per available seat mile, is the airline industry’s most-watched metric, as it measures the efficiency of an airline’s operations. It is calculated as passenger revenue divided by available seat miles.
Guidance for 2Q17
Delta Airlines (DAL) maintained its 2Q17 unit revenue guidance of 1%–3% in its March-quarter results. The airline’s unit revenue growth averaged at 2.5% YoY for the first two months of the quarter, well within its target range.
United Continental (UAL) has also guided for 1%–3% unit revenue growth in the second quarter. The airline has maintained its unit revenue guidance, despite an increase in capacity growth guidance. Inefficient capacity growth can be detrimental to unit revenue.
American Airlines (AAL), on the other hand, plans to overtake its legacy peers. It has increased its unit revenue forecast. Earlier, the airline expected unit revenue to grow 3%–5% in 2Q17. Last month, the airline raised its guidance to 3.5%–5.5% YoY. It also increased its operating margin guidance to 12%–14% from its earlier guidance of 11%–13%.
After a decline of 2.8% YoY in unit revenue in 1Q17, Southwest Airlines (LUV) now expects growth in its 2Q17 revenue. It has guided for unit revenue growth of 1%–2% YoY in 2Q17.
JetBlue Airways (JBLU) recorded a unit revenue decline of 4.8% in 1Q17. It had guided for unit revenue growth of 3%–6% in 2Q17. However, it has now increased its guidance to growth of 4%–6%.
Spirit Airlines (SAVE) saw a 9.1% decline in its unit revenue in 1Q17. In its 1Q17 earnings release, it guided for unit revenue growth of 3.5%–5.5% YoY. However, in early May, Spirit Airlines faced severe flight cancellations due to a pilot strike, leading to the airline reducing its unit revenue guidance to growth of 3%–5% YoY.
Investors can gain exposure to airlines by investing in the SPDR S&P Transportation ETF (XTN), which invests ~21.7% of its holdings in airlines. Next, we’ll take a look at airfares.