Second Quarter Results 2001-2006

Financial Measures

Performance Measure 1 (Tables 1-3): System Operating Profit/(Loss) per Enplanement:

• The second quarter of 2006 marked a turn-around as the network carriers surpassed the low-cost carriers in system operating profit/loss for the first time in at least five years.
• While the network carriers have shown large losses or minimal profits in previous years, the low-cost carriers, led by Southwest Airlines, have consistently shown a profit per enplanement but have not returned to the levels attained in 2000.
• In the second quarter, all of the network carriers except United Airlines and Alaska Airlines exceeded the profitability per enplanement of Southwest, the most profitable of the low-cost airlines.
• Of the network carriers, US Airways profitability per enplanement approached $30 while American Airlines exceeded $20 and Delta Air Lines and Continental Airlines almost reached $20.
• In the low-cost group, Southwest was the leader with the others showing lower rates of profitability, except ATA Airlines and Spirit Airlines which reported operating losses per enplanement.

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Performance Measure 2 (Tables 4-6): Operating Expenses (Excluding Fuel/Labor) per Enplanement:

• Network carrier costs rose faster than low-cost carrier costs from 2001 to 2006.
• Network carriers’ operating expense (excluding fueld and labor) per enplanement increased $26 per enplanement or 30 percent, primarily as a result of substantial increases in contracted fee per flight activity Regional Jet schedules as the network airlines have aggressively reduced their domestic mainline operations.
• Operating costs per enplanement for low-cost carriers increased only $2 per passenger or 5 percent, mainly related to double-digit capacity growth.
• The low-cost carriers’ core operating expenses, excluding fuel and labor costs, per enplanement were $71 lower than the network carriers compared to a $47 cost advantage in 2000.

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Performance Measure 3 (Tables 7-9): Passenger Revenue per Enplanement as a Percentage of System Operating Expenses (Excluding Fuel/Labor) per Enplanement:

• The network carriers improved their passenger revenue to operating costs (excluding labor/fuel) per enplanement margin from 89 percent in 2001 to 100 percent in 2006, a gain of 12 percent.
• The improved margin was driven by higher passenger revenue per enplanement – $227 per enplanement including all revenue from scheduled, charter and regional jet contract operations.
• The network carriers maintain a revenue premium per enplanement over the low-cost airlines but their margins are lower due to their higher operating costs per enplanement.
• The low-cost carriers improved their revenue to operating cost margin by 38 percent – from 122 percent in 2001 to 168 percent in 2006 by keeping costs under control.
• The low-cost passenger revenue per enplanement was $112, well below the revenue per enplanement of the network group.
• The leading margin network carrier was Alaska Airlines at 153 percent (below the low-cost group average of 168 percent).
• The best performing low-cost airline was Southwest Airlines with a 247 percent margin. Southwest trailed only JetBlue Airways in margin improvement from 2001 to 2006.

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Employment and Traffic Measures

Performance Measure 4 (Tables 10-12): Average Full-Time Equivalent Employees per Aircraft:

• The network airlines closed the gap with the low-cost airlines between 2001 and 2006. In 2001, the network carriers employed 37 more FTEs per aircraft than the low-cost carriers. In 2006, the gap closed to 25 FTEs per aircraft.
• Low-cost carriers reduced FTEs per aircraft (a measure of operational efficiency) by 16 percent from 92 FTEs per aircraft in 2001 to 77 FTEs in 2006.
• The network carriers did even better by reducing FTEs by 21 percent or 27 fewer employees per aircraft.
• In the network group, Northwest Airlines had the best percentage improvement at a 32 percent reduction in FTEs per aircraft while Continental Airlines exhibited the least improvement at a 15 percent reduction.
• Spirit Airlines led the low-cost group with a 21 percent reduction in FTEs per aircraft while Frontier Airlines lagged this group with only a 2 percent efficiency improvement.
• Full-time Equivalent Employee (FTE) calculations count part-time workers as one-half of a full-time employee.

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Performance Measure 5 (Tables 13-15): Average Revenue Aircraft Minutes per Full-Time Equivalent Employee:

• Aircraft only generate revenue for airlines when they are airborne.
• A key productivity measurement is average monthly revenue airborne minutes per FTE.
• The low-cost carrier group has maintained a wide advantage over the network airlines in average monthly revenue air minutes per FTE. The low-cost group improved its 2001 advantage of 52 minutes to 70 minutes in 2006 – an overall performance improvement of 33 percent.
• The network carriers improved by 31 percent, but the increase in revenue airborne minutes per FTE was only 39 minutes – to 164 minutes – compared to the low cost carrier gain of 57 minutes to 234 minutes per FTE.
• AirTran Airlines led the low-cost group with nearly four hours of airborne time per FTE at 263 minutes.
• The leading network carrier was Alaska Airlines which generated 207 minutes of airborne time per FTE.
• Full-time Equivalent Employee (FTE) calculations count part-time workers as one-half of a full-time employee.

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Performance Measure 6 (Tables 16-18): Average Enplanements per Full-Time Equivalent Employee:

• Both the network and low-cost groups improved their performance from 2001 to 2006 but the low-cost carriers still boarded 68 percent more passengers per employee than the average for the network group.
• The network carriers gained 30 percent from 2001 to 2006 while the low-cost carriers improved by 21 percent.
• The low-cost carriers’ output exceeded the network airlines by more in 2006 than it did in 2001. In 2006, the low-cost carriers generated 218 enplanements per FTE employee compared to 130 enplanements per FTE for the network airlines.
• Southwest Airlines was the low-cost group leader with 266 enplanements per FTE. ATA Airlines trailed the group with 94 enplanements per FTE.
• US Airways led the network group with 168 enplanements and United Airlines lagged the rest of the group with 114 enplanements per FTE.
• Full-time Equivalent Employee (FTE) calculations count part-time workers as one-half of a full-time employee.

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Operating Expense Measures

Performance Measure 7 (Tables 19-21): Average Fuel Cost per Enplanement:

• In the last year, fuel expense per enplanement rose sharply for both carrier groups.
• The network airlines’ fuel cost per enplanement more than doubled in 2006 to $59 per enplanement from $25 in 2001.
• The low-cost group’s 2006 fuel cost per enplanement of $30 per enplanement was about half the network cost but it was a sharp increase over the 2001 expense of $15 per enplanement.
• United Airlines’ fuel expense in 2006 of $69 per enplanement was the highest of the network group while US Airways’ and Alaska Airlines’ $44 per enplanement was least expensive.
• ATA Airlines paid the most for fuel per enplanement in the low-cost group at $81 while heavily fuel hedged Southwest Airlines enjoyed the lowest expense of only $22 per enplanement.

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Performance Measure 8 (Tables 22-24): Average Full-Time Equivalent Employee Compensation per Enplanement:

• The network carrier group reduced labor expense per enplanement by $14 from 2001 to 2006 through aggressive cost-cutting and abrogation of contractual labor expenses through the bankruptcy courts.
• Yhe financially stronger low-cost carrier group’s compensation expenses rose $5, reflecting the group’s increasingly senior work force and subsequent wage increases.
• The 2006 low-cost carriers’ employee compensation per enplanement was still $23 less per enplanement than that paid by network carriers, compared to $42 less in 2001.
• American and United Airlines’ labor costs per enplanement were highest among the network carriers at $62 while US Airways had the least expensive labor costs at $38 per enplanement. United reduced labor costs by $31 per enplanement from 2001 to 2006, the most of any of the carriers.
• US Airways, the network carrier with the lowest cost per enplanement, paid more than all carriers in the low-cost group excluding ATA Airlines’ $72 per enplanement.
• AirTran Airways, at $20 per enplanement, had the lowest cost.

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Performance Measure 9 (Tables 25-27): Average Annual Full-Time Equivalent Employee Compensation:

• From 2001 to 2006, low-cost carrier annual compensation costs increased 44 percent while the network airline growth was up 9 percent reflecting the networks’ more senior remaining employee group after several series of significant layoffs.
• The annual compensation cost gap between the two groups was reduced to $2,000 in 2006 from $20,000 in 2001.
• Low-cost carrier Southwest Airlines’ average annual compensation of $104,081 was the highest of the 14 airlines, the first time in any second quarter that Southwest or any non-network carrier has had the high mark. In the second quarter of 2001, all network carriers except Alaska Airlines had higher average compensation than Southwest.
• Northwest Airlines’ average annual compensation of $93,267 was the highest network carrier compensation. US Airways reported the lowest annual compensation among the network carriers, which at $76,013 was higher than five of the seven low-cost airlines.
• Southwest’s average compensation was $23,000 higher than ATA Airlines, the next highest low-cost carrier. Southwest’s $33 compensation per enplanement was $5 lower than the $38 per enplanement paid by US Airways, the lowest network carrier (Performance Measure 8).
• Full-time Equivalent Employee (FTE) calculations count part-time workers as one-half of a full-time employee.

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