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What the Performance Measures Show Second Quarter Results 2001-2006

What the Performance Measures Show
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 groups 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 groups compensation expenses rose $5, reflecting the groups 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.
  • Southwests average compensation was $23,000 higher than ATA Airlines, the next highest low-cost carrier. Southwests $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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