Airline Industry Report

Overview

According to the airline industry report, After a tumultuous emergence from bankruptcies amid mergers, takeovers and rumors of further consolidation, U.S. airlines continued to stabilize financially in 2006 and early 2007. The successful strategy of reducing domestic capacity resulted in increased revenue passenger miles (RPM), despite reduced available seat miles in 2006 (up 1.9% and down 0.1%, respectively). In an industry for which a 79.4% load factor is considered breakeven, the average load factor for the year was 79.7%, according to the U.S. Department of Transportation.

Yet not everyone got an equal piece of the pie. AirTran, JetBlue and Southwest saw RPM increases in the double digits, while American Airlines had only an incremental increase, and Delta’s and Northwest’s RPM decreased. Although passenger revenue per RPM increased across the board, the gains ranged from 4.8% (for Continental) to over 18% (for JetBlue). While the party certainly isn’t over, the airline industry report shows that average fares have declined in the first half of 2007, the first such reduction since 2004.

Airline Industry Report

United Airlines broke free of bankruptcy in February 2006, and Northwest and Delta emerged from bankruptcy protection the following April and May, respectively. Recently, Midwest Airlines agreed to a private equity buyout by TPG Capital (formerly known as Texas Pacific Group, one of the purchasers of Sabre Holdings Corp.). The latest round of bankruptcies and consolidation appears to have ended, and the remaining players are profitable and focused on staying that way. Only time will tell whether the upturn in profitability will continue or level out, but many in the industry are optimistic that the positive results will hold through 2008.

Online airline sales will surpass $50 billion in 2007 – a 19% gain over 2006, when 23% growth pushed gross bookings past $42 billion (see Table 4.1). The online channel is expected to grow at nearly five times the pace of overall airline revenue in 2007, and airline Web sites will continue to grow at a higher rate than online travel agency air sales (see Table 4.2). PhoCusWright estimates that as airlines execute their full-content, customer relationship management and Travel 2.0 strategies, airline direct sites will grow an average of 23% in

2007. As the U.S. online travel market continues to mature, growth is expected to slow to 14% by 2009. Despite successfully negotiating reduced booking fees, according to the airline industry report, airlines see their Internet sites as their most efficient booking channels and will continue to invest there.