July 01, 2013
Credit: Keith Gaskell
The overall outlook appears to be brightening for the airline industry, raising hopes that a new upward cycle is beginning. But look below the surface, and a much more complex—and in some cases troubling—picture emerges.
Aviation Week's latest Top-Performing Airlines (TPA) study shows that an increasing number of carriers are in a healthier financial position as the latest downturn releases its grip. This change in momentum means many contrasting dynamics are at work, however. Some airlines that sank lowest are among the biggest improvers, while carriers from much-touted developing regions are generally struggling to exit the malaise. Small, niche carriers still have an advantage, but large airlines are starting to perform better. And fortunes are certainly mixed for the newly merged mega-carriers.
The annual TPA study is based primarily on financial results from the last full calendar year. Carriers are scored in six categories, and ranked by total score. In this year's analysis, the complex set of formulas used to calculate airline scores has been revamped to offer an even more nuanced assessment of airline performance. Prior-year scores have also been recalculated to reflect the new formulas.
This year's overall top performer is Allegiant Air, which also won in the small carrier division. Ryanair was the best of the large carriers, and Copa Airlines was the top mid-size company. The rankings only include publicly traded airlines. This means the large Middle Eastern carriers, for example, are omitted.
Of the 71 airlines tracked in the TPA study, 35 improved their total score through the end of 2012. This also means that half were down, and the median score for most regions declined too. However, this is still much better than the previous TPA study, when only 15 carriers saw their scores improve. Enough evidence is emerging that the trend is upward, and this aligns with other industry economic assessments, which show 2012 as the bottom of the latest cycle.
All signs point to continuing improvement this year, according to the TPA Council of Advisers—a group of five leading airline analysts consulted by Aviation Week. They believe there is generally more upside for the industry at the moment. Improvements in financial health have so far been mainly based on structural reforms within the industry, so when global economic growth kicks in, the airlines should see further gains.
“On a macro basis things are definitely improving, although there are pockets that are slower to come to that point,” says Bryan Terry of PwC.