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Airlines are doing well – so why aren’t analysts happy?

Ashley Milne-Tyte Aug 1, 2016
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Airline earnings are up but unit revenue is down - what does that mean? Bruce Bennett/Getty Images

Airlines are doing well – so why aren’t analysts happy?

Ashley Milne-Tyte Aug 1, 2016
Airline earnings are up but unit revenue is down - what does that mean? Bruce Bennett/Getty Images
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Airlines have been doing really well recently – profits are up, they’re distributing dividends to investors, and upping pay. So why aren’t analysts happy? Well there’s this little thing with a clunky name – unit revenue – and that indicator of airline health hasn’t been so good.

Carriers don’t get all their revenue from fares – they get plenty from things like baggage and cancellation fees. So to know how well they’re doing from passengers you need to look at something called passenger revenue per available seat mile…another name for unit revenue.

Joe Brancatelli runs JoeSentMe.com, a website for business travelers.

“That gives you the most accurate look at how the airlines are now doing,” he said. “And they’re not doing as well as they were even three months ago.”

Cheaper fuel encouraged airlines to add flights, but he said they haven’t attracted enough travelers.

“And what the airlines are beginning to tell us is that going forward they will be cutting back again because they have too many empty seats.”

Which should bring unit revenue up again.

Robert Mann is an airline industry analyst.

“In the kind of economics 101 sense, if we saw a balance between the supply of airline seats and the demand for airline seats we would see stable pricing,” he said.

But he says it’s tough to get it just right. Airlines don’t have a crystal ball. Fuel prices fluctuate. They have to lock down costs months in advance – then geopolitics can upend everything. And cost-cutting rivals can come on the scene.

“Norwegian Air, Wow Air, which is an Icelandic-based carrier,” he said, “both of which are offering extremely low fares on the North Atlantic, cannibalizing some traditional fare demand and growing very fast.”

He said this won’t affect US airlines immediately, but it is yet another threat on the horizon.

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