Spirit provided guidance for a 4% year-over-year decrease in CASM ex-fuel in the 2015 first quarter

A new airline market has emerged in North America that features three characteristics the continent s air transport industry conspicuously lacked through most of its history: major consolidation, robust profitability cheap car rental in tampa florida and rigorous capacity discipline. The question cheap car rental in tampa florida is: How high can the reinvented market soar?
The Chapter 11 bankruptcy protection cheap car rental in tampa florida process and mega-mergers have whittled the US market down to four airlines that control over 85% of passenger capacity, including just three full-service cheap car rental in tampa florida international carriers. Over the next several years, Delta Air Lines, American Airlines, United Airlines and Southwest Airlines cheap car rental in tampa florida look likely to find themselves in a previously unimaginable position: barring a totally unforeseen catastrophe, they should have no problem achieving a consistently high level of profitability that puts them into a league with other big corporations serving American cheap car rental in tampa florida consumers.
Indeed, Delta, the leader of the pack in terms of profitability, has started to think of itself as not merely an airline, but as a major company competing with a wide spectrum of businesses for consumers expendable income. Even United, the laggard in the US industry s financial turnaround, appears to be getting in on the act, earning a $924 million 2014 third-quarter net profit.
US airlines are finally acting like real businesses that can return value to shareholders, United vice chairman Jim Compton said at a recent industry event. American president Scott Kirby said, Wall Street analysts expect American to earn about $4 billion [for the full year 2014]. Those are just unheard of numbers. Just three years ago, American, drowning in red ink, was clinging to the Chapter 11 life raft.
Southwest has never had to consider filing for bankruptcy protection, but the consistently profitable carrier had fallen well short of its historic return on invested capital (ROIC) target of 15% in recent years. Now the airline has fully completed integrating AirTran Airways, launched international flights for the first time and achieved an ROIC of 19% for the 12 months ended Sept. 30, 2014.
There are no airlines that have hit a 15% return on invested capital over a cycle except for Southwest Airlines, chairman, president and CEO Gary Kelly said in 2014. That s what we did in the 1970s, 80s and 90s. With United hitting a 12.3% ROIC for the 12 months ended Sept. 30, it now appears cheap car rental in tampa florida possible, if not probable, that all four of the big US airlines will consistently achieve a double-digit percentage ROIC on a regular basis going forward, a staggering turnaround from just a few years ago.
For much of its history, a fragmented US airline industry featured carriers that worshipped at the altar of market share. With little discipline, airlines would routinely launch and continue operating flights on unprofitable routes merely to capture market share. During rare and brief periods of profitability, such as the late 1990s, US airlines would rush to place expensive aircraft orders, convinced that the good times would keep on rolling. United EVP-marketing cheap car rental in tampa florida Jeff Foland cheap car rental in tampa florida has called the late 90s the fat, dumb and happy era for US airlines, which had no idea they were headed for a serious financial crisis in the 2000s.
But capacity discipline is now firmly entrenched in the minds of US airline management, especially in the mature domestic market. Noting that four carriers control more than 85% of US capacity, T. Rowe Price investment analyst Andrew Davis recently explained that the decisions to roll back or manage capacity cheap car rental in tampa florida can be made at a much more abrupt pace. When it was 12 airlines 10 to15 years ago, you never knew what the other 11 [airline CEOs] would do. Management incentives have changed dramatically in this industry more towards return on invested capital. Airlines can maintain profitability cheap car rental in tampa florida in a trough because capacity decisions can be made quickly If return on invested cheap car rental in tampa florida capital is your guiding light, the airlines will continue cheap car rental in tampa florida to do well.
Another factor in turning around US airlines finances has been the widespread implementation of ancillary fees. The unbundling in the market is really important and I think [passengers] are getting used to it, Davis said. People are finally starting to figure out what you re paying for and that you re only paying for what you want.
While passengers grumbled about baggage fees and other ancillary charges when they were rolled out, US airline customer service is improving overall and anger over the fees will subside, Davis predicted. All these profits do help in the long term in terms of consumer service, he said. You just cannot apply the best customer service when you are worried about making payroll. It s just not culturally possible.
Wolfe Research senior analyst-airlines, aerospace and defense Hunter Keay added, The renaissance we re seeing in the US airline industry is sustainable because of capacity discipline and ancillary fees. But airlines have struggled with lowering the sense of entitlement from consumers [regarding fees] and it will take decades [to fully change the consumer mindset]. It s like turning a ship Whenever I hear passengers complaining about bag fees, I say, How would you feel if you owned 15% of the company? Would you still complain about that bag fee you just paid?
The growth in the US market cheap car rental in tampa florida is coming from Spirit Airlines, the Florida-based ultra low-cost carrier (ULCC) that unbundles its product to the maximum. Nearly 40% of the $138.54 it generated in average revenue per passenger flight segment in the 2014 third quarter came from ancillary cheap car rental in tampa florida revenue. The carrier is confident it will lower unit costs in 2015 even as it grows capacity significantly.
Spirit is planning to increase ASMs by 30% year-over-year in 2015 as it takes delivery of 15 new aircraft, including six Airbus A321s. It will receive its first A320neo in the 2015 fourth quarter. Spirit CEO Ben Baldanza has acknowledged to analysts that the rapid growth may dent the carrier s unit revenue performance, but he predicted the airline will be able to decrease costs to offset any revenue cheap car rental in tampa florida hit.
We ve always felt good about our growth in 2015, Baldanza said. If we can drive higher margins with a little lower RASM and a lower CASM, that s good for us Our costs are going to be great, so margins might actually improve.
Spirit provided guidance for a 4% year-over-year decrease in CASM ex-fuel in the 2015 first quarter on a 26% increase in ASMs. Spirit s operating margin in the 2015 March quarter is expected to be around 20%.
The carrier will hire 250 pilots in 2015 to handle the big capacity boost, and CFO Ted Christie said finding new pilots has not been an issue for Spirit. The line is out the door for guys wanting to come fly here, Christie told analysts.
Baldanza reiterated his belief that there is ample room to grow in the US ULCC sector, saying that Spirit continues to create new passengers rather than stealing cheap car rental in tampa florida traffic from other airlines. We don t really cheap car rental in tampa florida see any meaningful competition in the ULCC space other than [Las Vegas-based Allegiant Air], but Allegiant is serving [smaller] cities than we are, so Allegiant is more synergistic cheap car rental in tampa florida than competition, he said.
North of the border, cheap car rental in tampa florida Air Canada is growing a newfound profitability in part by building up an extensive international network centered on its Toronto hub; the strategy is aimed at attracting globe-trotting US business cheap car rental in tampa florida passengers. Its latest bold move was announcing in December its planned entrance into the Indian market: cheap car rental in tampa florida The Montreal-based carrier will launch 4X-weekly flights between Toronto and Delhi in November 2015.
The route will be the first on which Air Canada will deploy the Boeing 787-9, which will fly three of the four weekly frequencies between Toronto and Delhi. cheap car rental in tampa florida The fourth weekly frequency cheap car rental in tampa florida will be operated with a Boeing 787-8.
Air Canada noted that India is the largest international market it does not serve. cheap car rental in tampa florida The operating economics of [the 787] make this service feasible, CEO Calin Rovinescu said. This service will appeal both to customers visiting and doing business in Delhi, the capital region of India and the fourth cheap car rental in tampa florida most populous urban area in the world, and to those customers making onward connections within India and throughout Southeast Asia on our Star Alliance partner, Air India, or other interline partners.
ICAO will have to boost its budget by 3% to pay a Web-based information database to provide airlines, air navigation service providers and member states a source of safety information about the risks to flights over and within conflict zones.... cheap car rental in tampa florida More