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What the Performance Measures Show Third Quarter Results 2001-2006

What the Performance Measures Show
Third Quarter Results 2001-2006

Financial Measures

Measure 1 (Tables 1-3): System Operating Profit/(Loss) per Originating Passenger

In the third quarter of 2006 the network carriers surpassed the low-cost carriers in system operating profit/loss for the second consecutive quarter.  The second quarter was the first since 2000 in which network carrier profit topped the low-cost group’s.  

  • The network carriers showed large losses or minimal profits in previous years while the low-cost carriers, led by Southwest, consistently reported a profit per originating passenger. Although their profits continued, the low-costs have not returned to the profit levels of 2000.
  • In the third quarter, all of the network carriers except Delta and Alaska exceeded the profitability per originating passenger of Southwest, the most profitable of the low-cost airlines.
  • Of the network carriers, Northwest’s profitability per originating passenger was over $35 while United and Continental exceeded $20 and US Airways almost reached $20.
  • In the low-cost group, Southwest was the leader with almost $12 per passenger with the others showing lower rates of profitability, except AirTran, America West and Spirit, which reported operating losses per originating passenger.

Return to Measure 1

 

Measure 2 (Tables 4-6): System Operating Expenses (excluding Regional Jet Contract) per Originating Passenger

  • The favorable $147 cost spread per passenger for the low-cost carriers compared to the network carriers was greater during the third quarter of 2006 than during any third quarter since 2001 when the spread was $188.
  • Unit costs for 2001 were inflated as the events of September 11 temporarily shut down the National Air Space while the airlines’ were saddled with fixed operating costs that anticipated normal operations.
  • Measuring from 2001, when costs were inflated, the low-cost carriers’ expenses have grown faster.  But since 2002, the costs for the two groups rose at about the same rate.
  • Operating costs per enplanement for low-cost carriers increased $22 per passenger or 21 percent, mainly related to double-digit fuel cost increases. The network carriers’ aggressive downsizing in operations reduced costs that help offset the parallel rise in fuel expense.
  • Continental had the highest expense per passenger at $318 while Southwest operating cost per passenger was the lowest at $95.

Return to Measure 2

 

Measure 3 (Tables 7-9): System Operating Expenses (excluding Regional Jet Contract) per Aircraft

  • Operating expenses per aircraft increased equally from 2001 to 2006 for the network and low-cost carriers.  Partially reflecting the overall larger size of aircraft operated by network carriers, their quarterly cost per aircraft was $2.6 million higher than the low-cost carriers’ expense per aircraft.  The gap was the largest since 2001.
  • Operating costs per aircraft rose for all the network carriers except United, which reduced expenses by $0.7 million per aircraft.  United still had the highest average cost per aircraft in 2006 at $8.6 million.  US Airways at $6.3 million had the lowest aircraft expense in 2006 in the network group.  US Airways cost was higher than all but two of the low-cost airlines’ expense per aircraft.
  • In the low-cost group, ATA had the highest average cost per aircraft at $8.4 million. JetBlue’s increase of 77 percent from 2001 to 2006 was the most in the low-cost group.  AirTran had the lowest overall average cost per aircraft among the low-cost airlines at $4.1 million per aircraft but Southwest, at 29 percent, reported the lowest rate of operating expense growth per aircraft from 2001 to 2006.

Return to Measure 3

 

Measure 4 (Tables 10-12): Passenger Revenue per Originating Passenger (excluding Regional Jet Contract Revenue)  

  • The low-cost passenger revenue per originating passenger was $122, a gap of $134 from the $256 per passenger collected by the network group.  The gap grew more than 13 per cent from 2001.
  • Both groups benefited from the fare increases of the past 15 months.  Network airlines passenger revenue per originating passenger rose 15 percent since 2005 and 18 percent from 2001.  Starting from a level less than half that of the network carriers, the low-cost group revenue per passenger rose 11 percent from 2005 and 23 percent from 2001.
  • Among the network carriers only American and Northwest had less passenger revenue per originating passenger in 2006 than in 2001.  The leading passenger revenue network carrier was Continental at $306 per originating passenger.  Continental also showed an increase of $65 per passenger from 2001, the biggest of the network carriers.  Alaska reported the lowest $184 in revenue per passenger, the lowest of the network group.
  • The best performing low-cost airline was ATA with $283 per originating passenger.  Southwest trailed the rest of the low-cost group with $101 per passenger. Frontier reported a $39 reduction in its revenue per passenger compared to 2001, the only low-cost carrier with a loss in revenue, while Spirit showed no change from 2001 results.

Return to Measure 4

 

Employment and Traffic Measures

Measure 5 (Tables 13-15): 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 27 FTEs per aircraft.  FTEs per aircraft is a measure of operational efficiency.
  • Low-cost carriers reduced FTEs per aircraft by 16 percent from 88 FTEs per aircraft in 2001 to 74 FTEs in 2006.
  • The network carriers did even better by reducing FTEs by 19 percent or 24 fewer FTEs per aircraft.
  • In the network group, Northwest, Alaska and US Airways reported the fewest FTEs per aircraft.  United, American and Delta reported the most.
  • Northwest and United reduced FTEs per aircraft by 26 percent, the best improvement in the network group. Continental Airlines and Delta Airlines had the least improvement at a 14 percent reduction.
  • In the low-cost group, AirTran, Spirit and Southwest reported the fewest FTEs per aircraft.  ATA and America West reported the most. 
  • ATA led the low-cost group with a 35 percent reduction in FTEs per aircraft while JetBlue lagged the group with a 21 percent increase.
  • Full-time Equivalent Employee (FTE) calculations count part-time workers as one-half of a full-time employee.

Return to Measure 5

 

Measure 6 (Tables 16-18): Average monthly Available Seat-Miles (ASMs) per Full-Time Equivalent Employee

  • Both the network carriers and low-cost airlines substantially improved productivity by generating more ASMs generated per Full-Time Equivalent Employee from the third quarter of 2001 to the third quarter of 2006. 
  • The network carriers, with a 51 percent improvement, cut the gap with the low-cost carriers in half in those five years.  The low-costs improved 37 percent.
  • The network and low-cost airlines increased their average ASMs flown per FTE by flying longer distances with larger aircraft in 2006 than in 2001. 
  • ATA generated 289 million ASMs per FTE, the most of any network or low-cost airline in the third quarter.  ATA improved its performance over 2001 by 84 percent.  Frontier Airlines was at the low end of the low-cost group, generating 203 million ASMs per FTE, 17 percent more than 2001.
  • Delta generated 250 million ASMs per FTE, the most of any network carrier and showed the most improvement, 58 percent, from 2001 to 2006.  American, with 203 million ASMs per FTE, was the last place performer among the network airlines.  American lagged the next lowest network airline by 14 million ASMs per FTE or more than 6 percent.
  • Full-time Equivalent Employee (FTE) calculations count part-time workers as one-half of a full-time employee.

Return to Measure 6

 

Measure 7 (Tables 19-21): Average Monthly 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 a wide advantage over the network airlines in average monthly revenue air minutes per FTE.  The low-cost group improved its performance by 63 minutes from 2001 to 2006 and as a result, raised its 2001 advantage of 55 minutes over the network carriers to 70 minutes in 2006 – expanding the gap by 27 percent.
  • The network carriers improved by 40 percent, but the increase in revenue airborne minutes per FTE was only 48 minutes – to 167 minutes – compared to the low cost carrier gain of 63 minutes to 237 minutes or nearly 4 hours per FTE.
  • AirTran led the low-cost group with nearly four and one-half hours of airborne time per FTE at 268 minutes.  Four low-cost carriers generated more minutes per FTE than the leading network carrier.
  • The leading network carrier was Alaska Airlines which generated 211 minutes of airborne time per FTE. American lagged the group with 148 minutes per FTE.
  • Full-time Equivalent Employee (FTE) calculations count part-time workers as one-half of a full-time employee.

Return to Measure 7

 

Measure 8 (Tables 22-24): Average Monthly Originating Passengers 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 93 percent more passengers per employee than the network group, a wider gap than in 2001.
  • The network carriers improved performance by 59 percent from 2001 to 2006 while the low-cost carriers improved by 31 percent. But the low-cost carriers added 42 passengers per FTE compared to 34 for the network carriers.
  • In 2006, the low-cost carriers generated 178 originating passengers per FTE employee compared to 92 passengers per FTE for the network airlines.
  • Southwest was the low-cost group leader with 229 originating passengers per FTE. America West trailed the group with 95 passengers per FTE. 
  • Alaska led the network group with 130 originating passengers and Continental lagged the network group with 80 passengers per FTE.
  • Full-time Equivalent Employee (FTE) calculations count part-time workers as one-half of a full-time employee.

Return to Measure 8

 

Operating Expense Measures

Measure 9 (Tables 25-27): Fuel Cost Per Originating Passenger

 In the last year, fuel expense per originating passenger rose sharply for both carrier groups.

  • The network airlines’ fuel cost per originating passenger more than doubled in 2006 to $91 per passenger from $39 in 2001.
  • The low-cost group’s 2006 fuel cost per originating passenger of $39 was less than half the network cost but it was a sharp increase over the 2001 expense of $18 per passenger. It was equal to the network fuel costs in 2001.
  • The low-cost group paid $52 less per originating passenger than the network carriers in 2006.  In 2001, the low-cost carriers paid $21 less.
  • United and Continental both had fuel expense of more than $100 per originating passenger in 2006, the highest of the network group. Alaska Airlines’ cost of $59 per passenger was the least expensive.
  • ATA paid $92 for fuel per originating passenger, the most in the low-cost group, while heavily fuel-hedged Southwest had the lowest expense of only $27 per passenger.
  • Five of the seven low-cost airlines’ fuel expense per originating passenger was lower than the least expensive network carrier’s unit fuel expense.

Return to Measure 9

 

Measure 10 (Tables 28-30): Average Full-Time Equivalent Employee Compensation Per Originating Passenger

  • The network carrier group reduced labor expense per originating passenger by $41 from 2001 to 2006.
  • The financially stronger low-cost carrier group’s compensation expenses increased a modest $2 per originating passenger, reflecting wage increases for the group’s increasingly senior work force partially offset by sustained operational efficiencies.
  • The 2006 low-cost carriers’ employee compensation per originating passenger was still $40 less per passenger than that of the network carriers, compared to $83 less per passenger in the third quarter of 2001 when the numbers were impacted by September 11.
  • Continental’s labor expense per passenger was highest among the network carriers at $90 while Alaska had the lowest labor costs at $55 per passenger.  United reduced labor costs by $83 per originating passenger from 2001 to 2006, the most of any of the carriers.
  • Alaska, the network carrier with the lowest labor cost per originating passenger, paid more than all carriers in the low-cost group excluding ATA’s $76 per passenger.
  • AirTran Airways, at $27 per originating passenger, had the lowest labor expense in the low-cost group.

Return to Measure 10

 

Measure 11 (Tables 31-33): Average Annual Full-Time Equivalent Employee Compensation

  • From 2001 to 2006, low-cost carrier annual compensation costs rose 39 percent while network airline costs were up a more modest 3 percent reflecting the networks’ stringent labor cost-cutting policies in the aftermath of September 11.
  • The annual compensation cost gap between the two groups was reduced to less than $5,000 in 2006 from $25,000 in 2001.
  • Low-cost carrier Southwest Airlines’ average annual compensation of $101,019 was the highest of the 14 airlines, the first time in any quarter that Southwest or any non-network carrier has had the highest average annual compensation.  In the third quarter of 2001, all the network carriers had higher average compensation than Southwest.
  • Three low-cost carriers, Southwest, ATA and Spirit, had average labor cost increases of more than $20,000 in the five years.  Two network carriers, US Airways and United, reduced average labor costs.
  • Northwest’s average annual compensation of $92,809 was the highest of the network carriers. US Airways reported the lowest annual compensation among the network carriers, which at $76,054 was higher than five of the seven low-cost airlines.
  • Southwest’s average compensation was $13,000 higher than ATA, the next highest low-cost carrier.  Although Southwest had the highest average compensation, the carrier’s $37 labor cost per originating passenger was one-third less than the $55 per passenger paid by US Airways, the lowest network carrier (Performance Measure 10).
  • Full-time Equivalent Employee (FTE) calculations count part-time workers as one-half of a full-time employee.

Return to Measure 11