Unit revenue or passenger revenue per available seat mile is the airline industry’s most-watched metric. It measures the efficiency of an airline’s operations. It’s calculated as passenger revenue divided by available seat miles or capacity.
Third quarter 2017 guidance
In its second-quarter earnings, Delta Airlines (DAL) gave guidance of 2.5%–4.5% year-over-year or YoY growth in its unit revenue for the third quarter of 2017.
American Airlines (AAL) outperformed its legacy peers in terms of unit revenue growth in the second quarter. It will likely lag behind Delta in the third quarter. It has issued a unit revenue forecast of 0.5%–2.5% YoY growth in PRASM for 3Q17. It also expects to record an operating margin in the range of 10%–12%, compared to the earlier guidance of 11–13%.
United Continental (UAL), on the other hand, is the only airline to expect a possible decline in its unit revenue for the third quarter. The airline has issued guidance of -1% to 1% unit revenue growth in the third quarter. The airline has picked up its capacity growth pace. However, traffic growth continues to lag behind. Inefficient capacity growth can be detrimental to unit revenues.
After a decline of 2.8% YoY in unit revenues for 1Q17 and growth of 1.5% YoY for 2Q17, Southwest Airlines (LUV) has guided for 1% YoY growth in its unit revenue for the third quarter of 2017—including a one percentage point negative impact from the transition to the new reservation system.
JetBlue Airways (JBLU) also recorded a unit revenue decline of 4.8% in 1Q17, but then it recorded 5.9% YoY growth in 2Q17. It has now guided for unit revenue growth of -0.5% to 2.5% in 3Q17.
Spirit Airlines (SAVE) experienced a 9.1% decline in its unit revenues for 1Q17. For the second quarter, it managed to record 5.7% YoY growth in unit revenues. For the third quarter of 2017, it has guided for a unit revenue decline of 2%–4% YoY, mainly due to many flight cancelations owing to its pilot strike problems.
Investors can gain exposure to the industry through the PowerShares Dynamic Leisure & Entertainment ETF (PEJ), which invests 19.2% of its portfolio in airlines. Next, we’ll take a look at airfares.