It's been a long haul, but at last the airline industry can rejoice. Last year, the 100 largest airlines made a collective net profit of $5.7 billion, the first positive bottom line since 1989. And the industry's operating profit reached the record level of $15.5 billion, half as much again as in 1994.
However, some words of caution are in order. The net profit represents a margin of only 2.1 per cent; a net result at least five times as large would be more appropriate for a capital-intensive business sector at the peak of the economic cycle. Furthermore, several airlines continue to lose money in vast quantities.
Although individual carriers' results vary significantly, the improvement in operating performance is generally a result of higher yields, lower unit costs and higher load factors. Traffic growth was relatively unexciting. For this year's top 100 carriers, passenger numbers rose 5.8 per cent and revenue passenger km 7.9 per cent, although freight tonne km jumped 10.8 per cent. But revenues rose by 11.5 per cent, indicating better yields, and load factors improved by 1.1 percentage points, indicating better matching of capacity and demand. While these are only crude indicators, because revenues are affected by non-airline income and exchange rate fluctuations, they do produce an overall guide.
Further positive indicators arise from the six-year Airline Business 100 summary table. While this data is not directly comparable because the airlines within the top 100 change slightly each year, the table suggests an improvement in productivity. The industry's employee numbers rose only marginally in 1995, and revenue per employee rose by 11 per cent to $180,700. Furthermore, fleet numbers increased only 3 per cent, much less than traffic growth.
As always, analysis of the top 100 is complicated by one-off provisions for restructuring, accounting changes, state aid payments, and, in a few cases, changes of financial year-end.
Setting these non-operating items aside, British Airways has moved ahead of Singapore Airlines to become the highest profitmaker, with a $1.1 billion operating profit and a $740 million net gain. However, SIA has the highest net margin of the major carriers, at 14.9 per cent. Carriers such as Delta, Continental, USAir, United, Japan Airlines and TWA have achieved big turnarounds in financial performance.
Still, negatives remain. Twenty-one of the top 100 carriers lost money during this excellent year, with Air France/Air Inter, Iberia, Mexicana, Canadian, Gulf Air and Swissair heading the list. These carriers are still restructuring while the rest of the industry is reaping the benefits of favourable economic conditions and improved marketing and cost control.
A further negative is that only eleven of the 150 airlines included in the main part of this survey achieved the double digit net margins which most carriers ought to apsire to. Even worse, only two of these, SIA and Vasp, are in the top 50. The most profitable airlines by this measure continue to be the medium and small carriers. Last year, ValuJet led the industry with a net margin of 18.4 per cent; unfortunately this year's events have tarnished this success.
Some airlines remain unable to provide data in time for this survey to be produced. As a result, Airline Business has had to estimate the revenues of six top 100 carriers. In most cases this is due to slowness in reporting financial data; one airline, Hapag Lloyd, declined to make its figures available. This is unfortunate. Accurate, timely industry data plays an important role in improving understanding of the business - both among its participants, the airlines, and among outsiders such as regulators and financiers.
In this year's survey, we have added a guide to the four mega-alliances which have emerged from the frantic alliance-building in the last few years. After that come the six pages of data for the Airline Business 100 plus 75 smaller carriers. These are followed by an alphabetical list of the top 150 airlines; financial and traffic tables with commentary; regional breakdowns; and a page of notes and definitions.
Emerging mega-alliances
The frenetic alliance-building activity during the last two years has resulted in the first true mega-alliances emerging. The tables on this page show snapshots of the four major alliances.
The United-Lufthansa-Thai alliance is the largest in terms of annual revenues and total tonne km, and is the only truly global alliance.
If the American-British Airways alliance is approved, and if USAir remains a member of this group, then this alliance will be a close rival to the so-called 'LTU' group. It is not far behind in terms of sales and tonne km, but carries more passengers and employs more people.
Both groups take over $40 billion in annual revenues, employ a quarter of a million people, and carry some 200 million passengers a year.
Next comes the Delta-Swissair alliance, which is considerably behind the top two with sales of $27 billion. The Northwest-KLM alliance is still further behind, bringing in $16.7 billion in annual sales and with no Asian partner.
A degree of interpretation is required to produce these figures. South African Airways has been included in the 'LTU' group because of its strategic alliance with Lufthansa, but it also codeshares with American. American has recently signed a codesharing deal with the Taca group, but a shortage of comprehensive financial data on the Taca carriers means that this cannot be reflected in this table. Singapore Airlines retains its Global Excellence alliance with Delta and Swissair, but remains apart from the Delta-Swissair-Sabena-Austrian axis and codeshares with American.
Regional airline partners have been included in each alliance where the regional works exclusively for the major and where full data is available. However, it is impossible to allow for carriers like Mesa which feed several majors.
Likewise, major associates of individual alliance members are included in the overall alliance grouping, even though they may have little or no relationship with the other members of the group. For instance, Martinair is included with KLM-Northwest because KLM owns half of it, and British Midland is included in the United-Lufthansa camp as a result of the SAS shareholding. BM does have codesharing relationships with some members of the United group, but also has close links with rival majors such as American and Austrian.
Aside from these major groupings, there are plenty of major airlines which either have few alliances or, more commonly, have many route-specific alliances which straddle the lines between the major groups. These carriers can be expected to hone their alliance strategies in the near future.
Japan Airlines, the biggest unallied carrier with $15 billion in group sales, codeshares with Air France, which together with Air Inter accounts for $10.7 billion in sales. However this is not a strategic alliance yet, and there is no North American component to it. Meanwhile, JAL codeshares with Canadian Airlines, KLM, Thai and Varig, and Air France also has numerous non-strategic airline links.
All Nippon Airways codeshares with several airlines including Air Canada, Austrian, Delta and USAir. Continental and Alitalia codeshare but have yet to develop a truly strategic relationship, while Iberia has its Latin American partners but no close links elsewhere.
Onwards and upwards
here are four new entries into this year's Airline Business 100. The separation of Air Inter Europe from Air France results in a separate entry, although Air Inter's sales figure is inflated by a 15-month reporting period. Air Liberte enters at number 99 by virtue of more than doubling its revenue, although some of this increase is due to the weakening French franc. Air Europa's 37 per cent sales growth places it at number 97, while a 29 per cent growth in sales places US freight operator American International at number 100.
These four replace Air Algerie, Taesa, Malev and Atlantic Southeast Airlines. Taesa failed to provide any data, Air Algerie's revenue fell nearly 10 per cent, and Malev and ASA grew more slowly than the carriers which replaced them.
Austrian Airlines and Vasp enter the top 50 this year, as Gulf Air, Philippine Airlines and Aeromexico drop into the second half of the table. Japan Airlines moves up to the number two slot, because its ranking is now determined by consolidated group revenues rather than airline-only figures. The young Asian tigers continue to make steady progress, with Asiana up from 50 to 44 and EVA Air up from 64 to 54. Virgin Atlantic appears to have slipped due to a 10-month reporting period.
Six carriers in the top 100 - Saudi Arabian, Garuda, Egyptair, Hapag-Lloyd, Avianca and Kuwait Airways - failed to provide revenue figures, and their sales had to be estimated by Airline Business. Viasa also was unable to provide data.
Heading the list of smaller carriers is ValuJet, whose meteoric rise just failed to put it into the top 100. Other carriers appearing for the first time include Airtours, Far Eastern Air Transport, Caledonian, Aeropostale, Carnival, Canada 3000 and Atlas Air.
Back in the black
Following five straight years of losses, the Airline Business 100 carriers made a collective net profit of $5.7 billion in 1995. While Lufthansa recorded the highest net profit of over $1 billion, $614 million of it arose from an accounting change - the carrier is no longer allowed the generous special depreciation permitted up to now, and had to make a one-off addition to its bottom line.
Since it is more appropriate to consider results from 1995 operations only, the laurels for most profitable airline really belong to British Airways, which at $740 million came just ahead of the usual net profits leader, Singapore Airlines. BA also recorded the industry's highest operating profit, well over $1.1 billion.
However, BA's net margin is much less impressive at 6.1 per cent - hence its management's renewed cost-cutting efforts. As usual, the carriers with the highest net margins are mainly smaller airlines which do not even make it into the top 100 on revenue. ValuJet's stunning 18.4 per cent net margin makes it the highest-margin airline in this survey, although more recent events have cast a shadow on this financial performance. Taiwan's Far Eastern Air Transport came slightly ahead of the perennially high-margin Atlantic Southeast. Among the top 50 airlines, only two achieved double-digit net margins - Singapore Airlines at 14.9 per cent and Vasp at 13.5 per cent.
This year's tables are full of turnaround stories. Continental, Delta and USAir managed net result turnarounds of over $800 million, although the figures are distorted by the inclusion of large restructuring provisions in 1994. Still, Delta swung from an operating loss of $447 million in 1993/4 to an operating profit of $661 million in 1994/5 - a $1.1 billion improvement. USAir was not far behind with a swing of $813 million. The operating turnarounds achieved by Continental, United, Japan Airlines and TWA exceed $300 million.
The top 100 airlines achieved a highly creditable collective operating profit of $15.5 billion - half as much again as in 1994. As always nearly all of the industry's operating profit was made by 20 carriers.
However, the news is not all good. Of the 93 top 100 airlines which reported a net result, 21 suffered losses, some of them substantial. Air France recorded the highest net loss, almost $580 million. Nearly all of this relates to restructuring costs.
It is a similar story at Iberia, which lost $360 million in 1995. Mexicana's financial tale of woe continued, and Canadian's loss widened as it continued to restructure. Gulf Air's loss, which is based on provisional data, prompted the carrier to announce a comprehensive restructuring. Swissair's loss arose because of a $309 million restructuring charge. Japan Airlines was unfortunate: while the airline itself made a $160 million operating profit - its first since 1990 - and scraped a net profit of $5 million, on a consolidated level it remained in the red due to a poor performance in JAL's hotel and resort subsidiaries.
At least one of the reductions in net margin is not as bad as it appears. In 1994 Olympic Airways booked its entire $1.5 billion state aid payment as an extraordinary profit, making its creditable performance in 1995, a net profit of $28 million, appear to be an appalling deterioration.
Traffic booms
Growth was an important component of the airline industry's success in 1995. The Airline Business 100 carriers carried 5.8 per cent more passengers, and a longer average journey length meant that revenue passenger km rose 7.9 per cent. With freight tonne km increasing by 10.8 per cent, total tonne km grew by more than 9 per cent.
Several carriers managed much more exciting levels of growth, led by ValuJet's 175 per cent tonne km increase. The other fast-growing carriers are a mixture. Some are regional airlines, like Brazil's TAM, Skywest in the US, and TransAsia in Taiwan. The two Asian tigers, EVA Air and Asiana, continue to leap ahead. Three smaller US carriers, Carnival, Reno Air and Midwest Express, have performed well. Freight operators DHL, American International and Southern Air Transport expanded considerably. The list of fastest growing carriers also includes such diverse airlines as LanChile, Royal Brunei, and UK charter carrier Airtours International.
A few carriers carried less traffic last year. The only large traffic loss was Aeromexico's 19 per cent decline; the other traffic drops at USAir, Continental, Britannia, Mexicana, Indian Airlines, Monarch, Tunis Air and Tower Air were only minor. USAir and Continental dropped unprofitable routes and Indian Airlines lost traffic to its new competitors.
Overall, load factors improved by 1.1 percentage points to 68.9 per cent. Inevitably, the charter carriers continue to achieve the highest load factors, led by the 90 per cent plus performance at Premiair, Airtours and Britannia. Among the scheduled-only top 100 carriers, Virgin Atlantic achieved the highest load factor - 77.3 per cent - followed by Hawaiian Air. KLM and British Airways were the best performing top 50 carriers in terms of load factors.
Tiny Air Niugini achieved an astonishing load factor improvement - up from 60.5 to 78 per cent - although sadly this carrier's strong traffic growth failed to produce a profit. The other best improvements in load factor also arose from smaller carriers, such as Eurowings (up 8.4 points), Air Algerie (up 7.8 points) and Viasa (up 6.0 points). The best improvement among the top 100 carriers was TAM's 5.3 point rise.
The breakout tables of top 20s by passengers, passenger km, revenue tonne km and freight tonne km remain very similar to previous years. American overtakes Delta to become the second largest carrier by total tonne km, and Japan Airlines edges ahead of Air France at number seven. Air Inter Europe enters the top 20 passenger carriers, one place above its parent company; taken together, they would be ranked 11th. There are some small adjustments in terms of RPKs, with Northwest swapping places with British Airways, JAL with Continental, and USAir with Air France.
UPS overtakes Air France to become the third largest air freight carrier. EVA Air has doubled its freight tonne km to 1,736 million, shifting it from 28th place to become the 18th biggest air freight carrier. Freight now accounts for 57 per cent of EVA Air's traffic. Singapore Airlines and KLM both overtake JAL in the freight rankings, while United climbs ahead of Northwest and British Airways by this measure.
Definitions
Financial data is consolidated for the entire group where the airline is the dominant member of a group (eg AMR, UAL). Where the airline is a component of a wider group, airline-only data is provided (eg Cathay Pacific, Britannia).
Some airlines have reported in US dollars. For the others, local currencies are converted at the average exchange rates for the reporting period, taken from Reuters. Percentage changes in sales are calculated in US dollars and are therefore influenced by exchange rate changes.
Operating result is normally profit or loss after operating expenses but before interest, depreciation, abnormal items and tax. Net result is the profit or loss available to shareholders after all these items.
In the main table, the 1994 rankings have been restated to allow for new information.
Traffic data includes all systemwide scheduled and charter traffic unless stated in the notes. Freight includes cargo, express and mail. When incomplete data was supplied, conversions were made between passenger tonne km and revenue passenger km assuming the standard measurement of 90kg per passenger. Other conversion rates are 1 mile = 1.6093km and 1 ton mile = 1.46 tonne km.
Fleet includes all jet and turboprop aircraft in service, but excludes aircraft leased out or withdrawn from use. Fleet and employee numbers are taken at the end of the financial year unless noted.
Sources
The primary source for all information in this survey is individual airline reports. Additional sources included Iata's World Air Transport Statistics (WATS); the US Department of Transportation's Form 41 (via Back Information Services); the Orient Airline Association's Statistical Report; and Reuters.
Airline Business has estimated the revenues of Avianca, Egyptair, Garuda, Hapag Lloyd, Kuwait Airways and Saudi Arabian Airlines.
Notes
Aer Lingus Due to a change in year-end, 1994 revenue is unaudited for the 12 months to March 1994 but the 1994 net result is for 21 months.
Aero Lloyd Financials from Handelsblatt.
Aeroflot RIA Financials, fleet and employees from BBC.
Air Algerie Net from Airclaims.
Air Canada Financials include Air Alliance, Air BC, Air Nova, Air Ontario & NWT Air. Rest of data for Air Canada only.
Air China Result is pre-tax. Load factor is for scheduled services only. Financials from Reuters.
Air Europa Company name is Air Espana SA.
Air France Group All data for new financial year to 31 March. Air Inter Europe not included. 1994 results include $450 million in asset sales.
Air Inter Europe Financials for a 15-month year to 31 March 1996. Traffic for calendar 95. Fleet and employees as of 1 July 1996.
Air Liberte Financials are consolidated. Airline-only net profit was FFr6.57m (FFr3.32m in 1993/4) on turnover of FFr1,560m (up 56 per cent). Financials from Les Echos.
Air Littoral Financials and traffic from Le Figaro.
Air Malta Financials Air Malta Group. Traffic scheduled only. Charter passengers: 336,309.
Air New Zealand Data includes Eagle Air, Mount Cook and Air Nelson (except fleet and RTKs).
Alaska Airlines Data for Alaska Air Group, including Alaska Airlines and Horizon Air. Load factor and tonne km for Alaska Airlines only.
Alitalia Financials are unconsolidated. Consolidated result was a loss of $52.7m after a $272m gain from the sale of assets.
All Nippon Airways Financials consolidated. Traffic ANA only.
American Airlines All data for parent AMR Corp.
Ansett Australia Financials, fleet and employees for Ansett Australia Holdings. Traffic for Ansett Australia's domestic and international operations.
Arkia Israeli Airlines Traffic includes domestic scheduled and international charter.
Atlas Air Most of Atlas Air's traffic is carried on behalf of non-US carriers, and may not appear in official statistics.
Austrian Airlines Financials are for Austrian Airlines Group. Net result is after releasing untaxed reserves and accounting measures to take advantage of investment allowances.
British Airways Financials, fleet and employees are for the group, including TAT, Deutsche BA and Brymon Airways. Employees are average for year. Traffic is scheduled for BA and its wholly owned subsidiaries.
British Midland Data are for parent Airlines of Britain Group, and include Loganair and Manx.
Caledonian Subsidiary of British Airways until 31 March 1995. Employees are average for year.
China Southern Airlines Includes Xiamen Airlines, Shantou Airlines, Guanxi Airlines and Zhuhai Airlines.
Continental Airlines Employees average through year. Continental Express' traffic not included.
DHL Worldwide Express Data for DHL Airways, Inc.
Egyptair Load factor for scheduled services only. Net profit from Reuters.
Federal Express FTKs are for calendar 1995.
Finnair Includes Karair and Finnaviation.
Garuda Indonesia Load factor for scheduled services only.
Gulf Air Financial results provisional. Employees are average for the year.
Iberia Airlines Traffic, fleet and employees for Iberia only.
Iran Air Financial years end 20 March. Fleet, employees and traffic include Iran Air Tours.
Japan Airlines Financials consolidated, including 107 subsidiaries. JAL's airline-only revenue was $11,572m, with an operating profit of $159.7m and a net profit of $5.1m. Japan Asia Airways made $5.2m net and Japan TransOcean Air $1.0m. Other data JAL only.
KLM Financials are group, including KLM Cityhopper and Transavia. Fleet, employees and traffic KLM and KLM Cityhopper only (Transavia passenger numbers 2.3m in 1995/6).
Kuwait Airways Employees at 31 December 1995.
LTU Includes LTU, LTU Sud & LTE. Net result from Handelsblatt.
Lufthansa Lufthansa Group data. Includes Condor, Lufthansa CityLine and Lufthansa Cargo AG. Net result is after an extraordinary gain of DM879m (US$614m) relating to a change in the accounting treatment of depreciation.
Maersk Air Data excludes the UK-based Maersk Air Ltd.
Mesaba Aviation Financials and traffic for parent Mesaba Holdings. The 1996 results do not include a $49.3m gain from the September 1995 spin-off of AirTran Airways.
Monarch Airlines Financial data unaudited and includes Monarch Aircraft Engineering.
Olympic The 1994 result included a $1.5 billion gain from the state capital injection.
Royal Brunei Airlines Employees at 31 December 1995 from Iata. Other data from the Orient Airlines Association.
Sabena Financials, fleet and employees consolidated, including Delta Air Transport and Sobelair. Traffic Sabena only.
SAS Financials and employees for SAS Group. Fleet for SAS only. RPK, RTK and load factor for scheduled services only. Net result is before tax.
Singapore Airlines Financials and employees for SIA Group.
Skywest Fleet from RAA.
Spanair Due to a change in year-end, 1994 data are for 10 months.
Swissair Financials are Group and include Crossair and the now-defunct Balair/CTA. Traffic, fleet and employees are for Swissair only.
Tarom Financials are unaudited. The 1995 financials are affected by a government capital injection.
Trans States Fleet from AvStat.
Trans World Airlines Net result is after an extraordinary gain of $140.9m recorded upon TWA's emergence from Chapter 11 bankruptcy on 31 August 1995.
Transwede During 1996 Transwede is to be split into scheduled carrier Transwede Airways and charter carrier Transwede Leisure.
United Airlines Data for parent UAL Corp.
USAir Data for USAir Group. Includes USAir Express subsidiaries Allegheny, Piedmont and PSA Inc.
Virgin Atlantic Financials are for 10 months due to a change in financial year. Traffic is estimated for calendar 1995.
Wideroe Financials are for Wideroe Group. RPKs are for scheduled services only.
Source: Airline Business
