The Airline Top 50 2013
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An elite group
Welcome to the second annual Airline Top 50. It is a supplement that presents the 50 best performing airlines from across the world based on reported financial results over the past 15 months.
Airfinance Journal’s sister website, The Airline Analyst, has reviewed the financial reports of nearly 150 airlines to provide definitive lists of the best airlines of 2012. Once again we provide lists of the Top 50 carriers on various parameters, including revenue, net income, Rask-Cask margin, passenger yield and return on equity. Put simply, The Airline Top 50 is an invaluable snapshot of the aviation winners of 2012.
In addition to providing a list by key criteria, we also display our own selection of the 50 best airlines last year complete with profiles. Picking ‘best of ’ lists is always a controversial process. After last year’s supplement was released we received various questions from the market. How are these carriers picked? Who decides this list, etc? These are all sensible questions that we will try to answer here succinctly.
The 50 airlines we showcase in our profiles are the finest examples of carriers offering sustainable, and profitable, growth. Airlines with big strategic footprints but which are in the middle of restructuring programmes and/or making losses are not included. Nor are airlines whose financials are not in the public domain. There is a strong, but not perfect, correlation between profitability and the selection of the 50 airlines. However, size is not a prerequisite: small airlines performing outstandingly in niche markets are included.
The gap
Airline profits have always been fairly modest. Last year global airlines made an estimated net profit of $7.6 billion, and the International Air Transport Association (Iata) forecasts them to make post-tax profits of just $10.6 billion in 2013. That is a global net profit margin of only 1%. Airlines last year made about the same level of profit as they did in 2006. As Iata points out, this is despite the fact that carriers are still operating in a high-cost environment and that the cost of oil is $40 a barrel higher than it was in 2006.
What these figures conceal, however, is the gap between the winners and the rest. The Top 50 airlines made an aggregate net profit of $14.3 billion in 2012. This tells us that the rest made aggregate losses of $6.7 billion. Other statistics reveal some more detail about the gap. The Airline Top 50 as a group made a net income margin of 4.1% – not fantastic when compared to other industries, but a lot better than the overall figure of 1%. They also had lower leverage, higher fixed-charge cover and much higher returns on capital employed. We will be expanding on this analysis in the next issue of Airfinance Journal.
Variations by geography and business model
Geographically, the strongest regions were Japan, North America, the Middle East and the rest of Asia-Pacific. The three largest Japanese carriers again demonstrated the strongest drivers of profitable growth. Of course, they now have three new low-cost entrants to face. While it may be that the new entrants will stimulate new demand rather than take away existing customers, this is a development to watch.
In North America the improved results from Air Canada reinforced the strong showing from the Canadian airlines. While all US carriers benefited from consolidation and capacity constraint, large restructuring costs for AMR and UAL had an impact on financial performance.
Results from the Middle East were mixed, with some outstanding results offset by airlines in need of restructuring. The Chinese carriers reported strong results for 2012, though leverage is of some concern. Results in the rest of the Asia-Pacific were varied, with legacy carriers needing to work hard to regain their former levels of profitability – and hoping for a return to growth in the air cargo market. The Asia-Pacific low-cost carriers, by contrast, continued to grow strongly and profitably, though competition is heating up.
The weakest regions were Europe and South Asia. The European airline industry is going through drastic restructurings of the largest carriers such as Lufthansa, IAG and Air France-KLM, as well as smaller national airlines such as Cyprus Airways, Lot, CSA Czech Air and Air Malta. We should expect more pain and casualties before this process is over.
By contrast the European low-cost carriers go from strength-to-strength, and many make the Airline Top 50 list. Performance by the Indian carriers was extremely weak, but Indigo performed well enough to make the Top 50 list. In the rest of the world the weak market in Brazil pulled down Gol and Latam. Copa, however, continued its stable growth and the other Latin carriers performed quite well.
The Airline Top 50 is a fluid list. Aviation is at a particularly volatile time with new entrants, increasing penetration of low-cost carrier models, numerous initial public offerings, many restructurings, new sources of liquidity springing up and new aircraft types on the horizon.
This year’s winners deserve recognition for their 2012 performance but they will have to work hard to keep their respective positions in 2013.
Dickon Harris
EDITOR,
AIRFINANCE JOURNAL
Michael Duff
MANAGING DIRECTOR,
THE AIRLINE ANALYST