More From Teresa Cederholm
Why Delta’s 3Q14 fuel expense was impacted by fuel hedges
Fuel expense is Delta’s largest expense. It accounted for ~29% of the total operating expense in 3Q14. Fuel consumption per available seat mile decreased by 1.5% during the quarter.
Why fatal disease outbreaks impact economic activity
The World Bank estimated Ebola’s impact by analyzing two scenarios—low Ebola and high Ebola. The scenarios are based on the probability of the disease spreading internationally.
Overview: Hilton Worldwide Holdings Inc.
Hilton Worldwide Holdings is one of the largest hospitality companies in the world. It was founded in 1919 by Conrad Hilton. The company started when he bought his first hotel in Texas.
JetBlue’s unit cost growth: Employee costs up, lower productivity
Salary, wages, and benefits increased as a result of higher wage rates. Airlines have also had to increase headcount to adhere to the new Federal Aviation Administration (or FAA) regulations on flight, duty, and rest.
Why Delta’s unit cost increased in 3Q14
Delta’s operating expenses increased by 16%, on 7% higher revenue, to $10,343 million. Higher costs had a negative impact on Delta’s operating profits.
Estimating American Airlines’ earnings growth
Apart from improved operational efficiencies, American has outperformed its peers in pre-tax margin (excluding special items) improvement in the first half of 2014 to 8.7% from 4.1% in the previous year.
Comparison of China Eastern’s fuel costs with competitors
Chinese airlines have an advantage of having lower employee costs compared to their counterparts in the US. Operational efficiency of US airlines are comparatively higher.
Must-know: Alaska’s commitment to increase shareholder returns
Increases in share prices and dividends provide direct benefits to shareholders. The increases in share prices give better returns. Share repurchases and stock splits provide indirect benefits. Share repurchases lead to a reduction in outstanding shares. This results in increased EPS.
Gol’s passenger revenue increases on higher yields
Brazil is the third largest domestic aviation market. With double-digit traffic growth, Brazil was one of the fastest-growing domestic markets in 2010 and 2011.
Delta Air Lines’ key strategy to increase shareholder returns
Capital expenditure is generally high in the airline industry. Delta manages to keep it low through its strategy of buying used aircraft.
Must-know: Delta Air Lines’ second quarter earnings
Today, Delta is one of the largest airlines in U.S. providing transportation services for passengers and cargo—it serves almost 165 million customers each year to 225 domestic and 97 international destinations.
Why trend in fee income is an important source of revenue
Marriott increased its fee income at a ten-year compound annual growth rate (or CAGR) of 7.6% to $1,543 million in 2013—from $742 million in 2003.
United sees major improvement in 3Q14 fuel cost efficiency
United achieved significant fuel cost savings during 3Q14 in the form of lower purchase costs and improved fuel efficiency.
The must-know drivers of air cargo growth for US airlines
According to the IATA, global air freight volume has increased by 4.5%. Capacity, measured by available freight ton kilometers (or AFTK), increased by 3.5% year-over-year in August 2014.
Why JetBlue’s cash position has improved
As of December 2013, JetBlue Airways (JBLU) had cash and cash equivalents of $225 million. JetBlue’s cash position has improved by 24% from $182 million in 2012.
Must-know: Alaska’s increasing return on invested capital
Alaska’s capital expenditure (or capex) mainly includes investment on aircraft. It increased since 2010. In 2013, ~80% of the total cash used for investing activities was on capital expenditure. The total capital expenditure was $566 million. $487 million was on aircraft and aircraft purchase deposits. $79 million was on flight equipment and other property and equipment.
Why it’s important for airlines to improve load factor
Load factor measures capacity utilization. It indicates the percentage of total capacity that an airline utilizes. Airlines are capital intensive. They have high fixed costs.
Why United Continental’s high-cost structure affects its margins
In 2013, almost 57% of United’s (UAL) $37,030 million total operating costs comprised fuel costs (33%) and salaries (23%), compared to Delta’s 46%.
Low yield, utilization drive down air cargo profitability
Growing trade activity drove the recovery in cargo traffic in emerging markets in Asia, but it was slightly offset by the slowing European economy.
Gol’s increased operating cash flow boosts higher free cash flow
Gol’s financial assets decreased in 3Q14, but its cash balance increased to 1,942 million real from 1,636 million real in FY13.
Why airlines adopt approaches to improve yield and revenue
Alaska Airlines (ALK) has the lowest yield of $0.148 among all its peers. Its peers include Delta (DAL) at $0.1689, United (UAL) at $0.1614, American (AAL) at $0.1622, and Southwest (LUV) at $0.1602. Revenue management is essential for the airline industry. The industry needs to maximize revenue by selling the most aircraft seats possible to customers at the best price.
Changes in the US airline industry’s competitive landscape
The Airline Deregulation Act of 1978 removed all regulations governing the airline routes, airfares, entry, and exit of commercial airlines. Earlier, this was controlled by the Civil Aeronautics Board (or CAB). Airfares and all other factors would be determined by demand and supply market forces.
US airline industry: Summary of share prices and valuations
Southwest outperformed all its peers. Its share price increased 2.6% to $33.77 in September. That said, year-to-date results are positive overall.
Why Delta’s share price increased after 3Q14 earnings release
Delta’s share price increased after the release of its 3Q14 earnings on October 16, 2014. On October 13, 2014, Delta’s share price reached $30.90—the lowest level since February 2014.
Higher passenger and ancillary revenue drive growth
JetBlue’s operating revenue increased by 6% to $1,529 million in 3Q14. The company states that its on-time performance was impacted by congestion in the air space.
Key growth trends in airline passenger traffic by region
Global passenger traffic has increased by 5.8% year-over-year during the first eight months of 2014. Europe (29.7%), Asia-Pacifc (29.2%), and North America (25%) comprise ~85% of global market share by passenger traffic.
Must-know: Southwest’s airport development initiatives and network expansion
Modernization and development of airports Southwest is involved in the management of various airport development initiatives. Few of them include Southwest entered into an agreement with Broward Country, Florida in 2013 to manage the Fort Lauderdale Hollywood International airport’s Terminal 1 modernization project. Entered into an agreement with city of Houston to expand the Houston […]
Must-know: Alaska Airlines’ aircraft and fuel efficiency
In 2013, Alaska operated a fleet of 131 Boeing 737 jet aircraft. It had contracts with Horizon, Sky West Airlines, and Peninsula Airways for regional capacity. Horizon operated 51 Bombardier Q400 turboprop aircraft. It sells all of its capacity to Alaska according to its capacity purchase agreements.
Why Ebola impacted the airline industry
During fatal disease outbreaks, rules and restrictions are imposed—especially on air transportation. This includes canceling flights to the affected areas.
Why the Ebola scare led to a 16% drop in the Airline Index
The share prices for major airline companies in the U.S. dropped substantially after the news of the first Ebola case in U.S. on September 30, 2014.
An investor’s guide to China Southern Airlines
China Southern Airlines’ network connects 1,024 destinations in 187 countries, including all major cities in Asia, Europe, the United States, Australia, and Africa.
Why Marriott is slowly expanding in international markets
Marriott has been expanding its presence in the international market. It added new brands in Europe, Asia Pacific, and the Middle East and African regions.
The global airline industry contributes to economic development
With 16,000 unique city pairs, connectivity by air is estimated to have doubled in the past two decades. Moreover, although demand continues to rise, the price of travel has fallen.
Overview: American Airlines Group Inc.
American Airlines (AAL) is now the largest airline as measured by Available Seat Miles (or ASMs) with a 26% market share.
Why the end of the Wright Amendment helps Southwest
With the repeal of the Wright Amendment on October 13, 2014, the company immediately launched nonstop flights to seven destinations. This was the largest single-day expansion in Southwest’s history.
Why Southwest expanded domestic and international service
Two of AirTran’s services to San Juan and Puerto Rico were already added to Southwest’s network in April, 2014.
An operational summary of China Eastern Airlines
Established on April 14, 1995, based in Shanghai, China Eastern Corporation Limited is one of the three largest air carriers in China.
Delta Air Line’s key operating segments and geographic segments
Delta Air Lines (DAL) derives 65.8% of its revenue from the passenger segment, 2.5% from the cargo segment, and 10.3% from other sources.
Royal Caribbean operates the world’s largest contemporary cruise brand
Royal Caribbean International is a global brand offered by Royal Caribbean (RCL). It’s one of the world’s three largest contemporary brands.
Why you should consider investing in American Airlines
In this series, we’ll discuss why the ~25% share price decline since June was actually an opportunity for long-term investors to buy shares of American Airlines.
Marketing contributes to Royal Caribbean’s growing customer base
Royal Caribbean (RCL) offers all cruise company services, including pre- and post-hotel stay arrangements and air transportation.
Must-know: Marriott International Inc.
Marriott International’s headquarters are in Bethesda, Maryland. The company was founded in 1927 by J. Willard and Alice S. Marriott.
Must-know: Why did Ebola reach the US?
Concerns about Ebola increased in the U.S. after September 30, 2014. Thomas Eric Duncan was the first person to be diagnosed with Ebola in the U.S.
Hilton’s diversified portfolio with 11 world-class brands
Hilton’s goal is to serve any customer, anywhere in the world, for any lodging need that they have. The company has a portfolio of 11 world-class brands. Hilton’s portfolio allows it to accomplish this goal.
Hilton’s hotel room composition by brand and chain scale
Hotel companies, like Hilton, expand their operations based on the demand for accommodations by location. They also expand based on customer preference for the level of service offerings.
Hilton expanded segments with low capital investment
Hilton expanded its operations in segments that require less capital investment. These include the Management and Franchise segment and the Timeshare segment.
Why Marriott’s timeshare segment spun off
Marriott completed the spinoff of its timeshare segment to Marriott Vacations Worldwide Corporation (or MVW) in 2011. MVW is now operating as an independent company.
Why economic indicators influence travel and tourism demand
The airline industry contributes to U.S. economic growth. The industry drives $1.5 trillion in U.S. economic activity. It also generates more than 11 million jobs in the U.S.
Why the American-US Airways merger was conditional
The combined entity’s share in the Washington Reagan Airport (or DCA) would be as high as 68% and its share in New York LaGuardia would be 33%.
Overview: Does American have funds to pay debts and expansion?
Although all operating and performance metrics of AAG has shown improvement after the merger, leverage is one area that needs considerable improvement.
Labor costs offset lower fuel costs as airlines boost hiring
There has been a recent substantial increase in profit-sharing expenses related to the employees, as the profitability of major US airlines increased.
Must-know: Delta kept its fuel cost lower than its peers
Delta’s (DAL) fuel price per gallon of $2.93 in 2Q14 was the lowest among its peers—all of its competitors including American (AAL), United (UAL), Southwest (LUV), and JetBlue (JBLU) had a fuel price per gallon between $3.02 and $3.09.
Airlines sell more tickets, report higher October passenger yield
The dollar value of airline tickets sold by US-based travel agencies rose 2.24% in October to $7.5 billion.
Low-entry barriers intensify competition in airline industry
Short-term outlook above expectations The IATA (International Air Transport Association) has revised its forecast upwards on global airline profitability after the free fall of crude oil prices in the second half of 2014. Global net profit for 2014 is now estimated at $19.9 billion, higher than $18 billion projected in June. Profitability is expected to […]
United expands presence in international markets with new routes
United’s capacity growth is concentrated in the Pacific and Latin American markets. United has the most extensive Pacific service compared to all other US airlines.
United’s capital expenditure and fleet management strategies
For each 50-seat aircraft that it replaces, United expects its profitability to improve by $1 million.
Why Delta achieved most of its targets for 3Q14
Delta achieved almost all of its targets in regards to fuel price, profit sharing expense, and overall system capacity. However, it failed to achieve its margin target in 3Q14.
Why high operating expenses were negative for Delta’s profit margins
In 3Q14, Delta’s operating margin decreased to 7.5%—from 14.9% in the previous year. Non-operating expenses also increased by 28% in spite of a decrease in interest expense.
Must-know: Delta’s fleet restructuring and capacity growth plans
Fleet restructuring is an important part of Delta’s cost reduction initiatives. Delta is replacing its 50-seat regional fleet with more efficient CRJ-900 and B-717-200 aircraft.
Why Delta’s cash balance decreased
DAL generated cash from operations of $4,365 million. This was ~29% higher than last year. However, the cash balance decreased by ~17% to $2,510 million as of September 30, 2014.
Southwest’s latest flight paths soar beyond borders
Southwest’s first five international routes were launched this year. Flights to Oranjestad, Aruba, Nassau and Paradise Island in the Bahamas, and Montego Bay, Jamaica were launched on July 1, 2014. Flights to San Jose del Cabo and Cancun, Mexico started in August, as scheduled.
Must-know update on Southwest’s fleet activity in 3Q14
Low-cost carriers such as Southwest and JetBlue operate fewer aircraft types than do legacy carriers. Southwest’s single fleet strategy has helped it maintain is low-cost competitive advantage by reducing maintenance and training costs.
Assessing the key drivers of global airline industry growth
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.
Why fewer aircraft deliveries in August slowed capacity growth
Airlines increase capacity by adding more aircraft to their fleet. In August, as we saw in Part 2 of this series, the rate of growth in capacity was lower compared to demand growth.
Why investors should track the Transportation Services Index
The Transportation Services Index (or TSI) measures changes in the passenger and freight movements in the U.S. domestic market.
Why are revenue passenger miles important?
Revenue passenger miles (or RPM) measures demand for air transport. It’s calculated as the number of revenue passengers multiplied by the total distance traveled.
Why yield is another key driver for airline revenue
Yield is the average fare per passenger per mile. Passenger revenue is calculated by multiplying revenue passenger miles (or RPM) by the yield.
Why there’s a trend in crude oil and jet fuel prices
The Brent crude oil price is expected to fall by ~4% in 2014—to $104.42 per barrel. Jet fuel price is a refined product of crude oil. It fell below $112 per barrel in September.
Why investors should track labor cost in the airline industry
The second largest cost component for airlines—after fuel cost—is salaries, wages, and benefits. Employment in the U.S. airline industry increased in the last couple of years.
Why the crude oil price fluctuates
Fuel cost is the largest cost component for airline companies. Jet fuel is produced by refining crude oil. As a result, jet fuel prices follow the trend in crude oil prices.
Key metrics to measure Royal Caribbean’s revenue performance
Now let’s look at certain key operating metrics used in the cruising industry to evaluate operational performance.
Southwest’s returns on investment and valuation
Southwest’s stock price has increased by 63.2% as the share price closed at $30.82 on August 18, 2014 from $18.8 in the beginning of the year. Apart from capital appreciation Southwest’s shareholders have also benefitted from a 50% increase in quarterly dividend from $0.04 per share to $0.06 per share from 2Q14. Southwest had earlier […]
Delta’s investments in airports, joint ventures, and alliances
Delta’s profitability in New York is expected to increase in 2014 as the company expands operations its in two major airports, LaGuardia and JFK.
Must-know: External factors that influence the airline industry
The airline industry has contributed to the globalization of the world economy. It connects buyers and sellers. It also transports goods across nations. It breaks the barrier of distance and time. The industry’s future looks bright. Travel expenditure in the U.S. is expected to grow by 4.3% in 2014 and 5.1% in 2015.
Why political and legal factors impact the airline industry
The airline industry is widely impacted by regulations and restrictions related to international trade, tax policy, and competition. It’s also impacted by issues like war, terrorism, and the outbreak of diseases—such as Ebola. These issues are political. As a result, they require government intervention.
Southwest records highest return on invested capital since 1981
With the entry into international markets, Southwest’s growth prospects improved substantially, more than doubling its share price.
Efficiency, lower fuel costs reduce Southwest’s unit cost by 4%
Southwest Airlines enjoyed a decrease in its operating expenses from $4,042 million in 4Q13 to $4,007 million in 4Q14.
Strong passenger, cargo traffic drive Southwest’s 4Q14 revenues
Driven by passenger and cargo segments, Southwest Airlines’s revenue increased by 4.5% year-over-year to $4,628 million in 4Q14.
Delta’s new branded fare categories expected to boost revenue
Delta’s new branded airfare initiative provides an opportunity to derive an annual benefit of $1.5 billion by 2018.
Comparing the major cruise lines’ operating and net margins
Among the three major competitors in the cruise industry, Royal Caribbean (RCL) had the highest operating margin in 2013.
Breaking down Royal Caribbean’s operating costs
Costs directly related to operating a cruise ship comprise ~74% of Royal Caribbean’s (RCL) total operating costs.
Negative impact of fuel hedges, decreasing crude oil prices
The lower fuel price should lower fuel expenses by $2 billion, and Delta plans to reduce its debt and increase shareholder returns with the cost savings.
Royal Caribbean tailors brands for specific international markets
Apart from operating the largest contemporary global brand, Royal Caribbean offers five additional brands targeting specific markets.
A closer look at Royal Caribbean’s revenue sources and growth
Royal Caribbean (RCL) derives revenue from two sources: passenger ticket revenue and onboard and other revenue.
Comparing Royal Caribbean’s leverage versus its competitors’
The cruise industry is getting more and more capital-intensive as newer, more expensive ships are introduced with better amenities.
Overview: Royal Caribbean Cruises, the 2nd largest cruise operator
Royal Caribbean Cruises, founded in 1968 and headquartered in Miami, Florida, is the world’s second largest cruise company.
Alaska’s cost structure boosts advantage against network carriers
Improving the completion rate by 1% to 99.3% translates into 2,000 flights per year. Reducing block time also results in significant cost savings.
Carnival stays competitive with strong financial position
Carnival has a stronger financial position than its peers. It maintained a very low debt-to-capital ratio of 28% in 2013 and just 27% in 2014.
A key overview of Carnival’s costs and profitability
Carnival’s operating profit increased to $1,792 million in 2014, from $1,352 million in 2013. Its operating margin increased to 11.3%, from 8.7% in 2013.
Key drivers of Carnival’s revenue growth
The growth of demand was the key driver of Carnival Corporation’s revenue growth in 2014. The number of passengers increased by 5% in 2014.
Carnival’s contemporary, premium, and luxury cruises
Cruise categories Cruise liners have been successfully providing a wide range of products and services at various price points to suit preferences of passengers from different age groups. Service levels and pricing differ by brand, category of the ship, cabins, season, duration, and itinerary. We can categorize cruise brands into these three categories: contemporary, premium, […]
Two segments make up 98% of Carnival Corporation’s revenue
Two of Carnival Corporation’s (CCL) operating segments comprise almost 98% of the company’s revenue. Carnival also reports a Cruise Support segment and a Tour segment.
What are Carnival Corporation’s revenue sources?
Carnival Corporation (CCL) derives revenue from the following three sources: passenger tickets, onboard or other activities, and tours.
Carnival boasts largest market share of cruise passengers
The number of Carnival’s cruise passengers has increased at a six-year CAGR of 4.6%. It has the largest market share of cruise passengers at ~47%.
A key overview of Carnival, the world’s largest cruise company
Carnival Corporation (CCL), the largest cruise company in the world, operates 101 cruise ships and has a global market share of ~47%.
Revision of global GDP growth estimate may alert airlines
Corporate profits, an important indicator of business travel, increased at a quarterly rate of 8% in 2Q14 after declining by 9.4% in the first quarter.
Key Asia-Pacific economies report higher October traffic growth
China is expected to overtake the US as the world’s largest passenger market by 2030.
Improved returns drive higher capital investments for airlines
Due to rising returns on invested capital, investments have increased and the number of aircraft has risen by 3% in the last two years. It’s expected to grow by 3.6% in 2015.
Top airlines by revenue passenger kilometers
Five US airlines are among the top 15 airlines by passenger traffic in 2013. United Continental Holdings ranks first with 287.2 billion revenue passenger kilometers.
Impact of currency fluctuation on China Eastern’s profitability
Chinese companies are vulnerable to exchange rate fluctuations, especially against the US dollar, and they have a high amount of debt denominated in US dollars.