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A Deep Analysis of the Growth Potential for 3 Major US Airlines

Comparative analysis on revenue passenger miles, available seat miles and total revenue per available seat mile

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James Li
Jul 21, 2017
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In light of an exciting European summer season, United Continental Holdings Inc. (

UAL, Financial), American Airlines Group Inc. (AAL, Financial) and Delta Air Lines Inc. (DAL, Financial) expect thousands of passengers onboard their flights. Investors can determine which of the airlines offers good growth potential for the rest of the year by comparing the revenue passenger miles, available seat miles (ASM) and passenger revenue per available seat miles (PRASM) for each of the airlines to the respective values for all U.S. airlines.

Revenue passenger miles

Revenue passenger miles measure the number of miles traveled by paying passengers on a flight. Higher RPMs indicate a strong customer base, which drives company revenue. Figure 1 shows the historical trend of revenue passenger miles for U.S. airlines.


Figure 1

While all three airlines had similar RPM values for the first six months, United’s RPM increased the most from the respective period a year ago (UAL 3.3% increase, AAL 0.8% increase and DAL 1.3% increase). (Figure 2 shows the breakdown of RPM for the three airlines over the past six months.) United CEO Oscar Munoz reported that while the company is “firmly on the right path,” United “still [has] much further to go before [the company] fully realizes” company potential and customer expectations. United’s domestic RPM slightly outperforms American and Delta’s RPM’s as Figure 3 illustrates.


Figure 2


Figure 3

United’s international RPM slightly outperforms American’s international RPM albeit approximately 3.4% lower than Delta’s international RPM as Figure 4 illustrates. This shows Delta has a stronger international customer base than the other two airlines.


Figure 4

Available seat miles

Unlike revenue passenger miles, which measure customer base strength, available seat miles (ASMs) determine the maximum potential revenue for an airline. Airlines that consistently increase their ASMs have higher growth potential than airlines with declining ASMs. Figure 5 shows the historical trend of ASMs for U.S. airlines.


Figure 5

United Air also outperformed American and Delta in terms of available seat miles. The Chicago-based airline reported a 3.5% increase in consolidated ASM for the second quarter from the prior-year quarter, about 2.3% higher than American’s. Figure 6 illustrates the breakdown of domestic ASM for the three airlines.


Figure 6

Passenger revenue per available seat mile

While the RSM and ASM can determine an airline’s revenue potential, the passenger revenue per available seat mile (PRASM) measures the “true” profitability of an airline.

United reported a 2.1% increase in total RASM and passenger RASM from June 2016-17, a “strong finish to the first half of the year” according to Scott Kirby, president of United. Kirby mentioned the team “delivered the best operational performance among major competitors during one of [United’s] busiest quarters.” The increasing RASM contributed to an operating margin of 13.99%, which is near a 10-year high and outperforms 59% of global competitors. United’s return on equity of 36.91% is also near a 10-year high.


Delta reported a total RASM of 16.29 cents, the highest among the three airlines for the second quarter. CEO Ed Bastian praised the company for delivering “top financial, operational and customer satisfaction results” during the quarter, increasing Delta’s “conviction in [the company’s] ability to expand margins” for the rest of the year. Delta’s profitability ranks 7 with expanding operating margins, an ROE that outperforms 82% of global competitors and a Greenblatt return on capital near a 10-year high of 34.70%.


Although American expects a second-quarter total RASM growth of 5-6% this year, the Dallas-based airline reported a 6.1% decline in total RASM in the prior-year quarter. American’s profitability ranks a poor 3, suggesting low growth potential. The airline has two severe warning signs, including declining revenue and increasing long-term debt. American’s three-year revenue growth rate of -8.9% underperforms 94% of global competitors.




United has good growth potential for the rest of the year even though the airline had poor customer interactions around late April to early May. According to the latest earnings report, the airline implemented “the majority of the [10] changes” to improve overall customer experience, including a customer solutions team and reducing the number of overbooked flights.

Berkshire Hathaway Inc. (

BRK.A, Financial)(BRK.B, Financial) CEO Warren Buffett (Trades, Portfolio) increased his holdings in American and Southwest Airlines Inc. (LUV, Financial) albeit trimming his Delta position during the first quarter.



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Disclosure: The author has no positions in the stocks mentioned.

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