Financial Strategy

Industry forecasts for the Airline industry are fundamentally positive looking out through 2014. This is based on the strong demand and favorable traffic and revenue trends experienced by the industry in 2013. This performance occurred with a United States economic recovery that is generally considered to be tepid at best. Due to the bankruptcy of American Airlines and other factors the industry is operating at reduced capacity levels which allow for fare increases as the passenger travel demand improves. At worst, if the travel demand were to weaken the airlines are well positioned to maintain air fares without the need to create a fare war to fill seats. The unpredictable prices of oil and jet fuel prices create uncertainty in financial forecasts and ultimately operating results. The bankruptcy filing of American Airlines, led to some domestic and international capacity cuts as American restructured. In addition, the resulting merger of American Airlines with US Airways is likely to lead to further capacity reductions over time. This will be the result of the elimination of duplicative operations, routes, gates, etc. The airline industry was successful in raising fares 2011 and 2012, but had less success with this strategy in 2013. Given the continued, although weak, economic growth, further fare increases can be expected in 2014. The largest U.S. air carriers earned $6.0 billion in 2013, $4.0 billion in both 2011 and 2012 and $3.7 billion in 2010, after losing $5 billion in 2009 and $4 billion in 2008. Results in 2013 benefited from improved business travel and lower oil prices, while increases in ancillary fees such as baggage, change fees and premium seating slowed. The continued reductions in both and international airline capacity over the past three years has dramatically improved airlines' pricing power. Total revenue passenger miles (RPMs) rose 1.8% in 2013, versus a 0.6% increase in 2012. Yields rose 2.0%, after a 3.2% advance in 2012. Available seat miles rose 1.3%, after a 0.4% decline in 2012. The passenger load factor rose by 0.3 percentage points to 83.1%, after a 0.8 percentage point increase in 2012. Year to date through May 16, 2014 the S&P Airlines Index rose 31.5% versus a 1.3% rise for the S&P 1500. In 2013, the S&P Airlines Index increased 67.0%, versus a 30.1% rise in the 1500. The 5-year compound annual growth rate for the S&P Airlines index through February 14, 2014 was 30.0%, versus 20.7% for the S&P 1500. (Value Line 05-23-14)

Competitors (All)

Southwest Airlines

24-May-2014 * NYSE * Symbol LUV * In S&P 500

Company Name Ticker Market Value-Total ($M) EPS Yield % Beta

DELTA AIR LINES, INC. DAL

33,051.04 12.54 0.60 1.53

AMERICAN AIRLINES GROUP INC. AAL

28,166.86 -3.60

SOUTHWEST AIRLINES CO. LUV

18,104.34 1.20 0.90 1.38

UNITED CONTINENTAL HOLDINGS, INC. UAL

16,273.56 1.01 1.70

RYANAIR HOLDINGS PLC RYAAY

15,423.98 2.47 0.70

INTERNATIONAL CONSOLIDATED AIRLINES GROUP, S.A. ICAGY

12,220.37 0.42 1.45

LATAM AIRLINES GROUP SA LFL

8,123.20 -0.72 0.00 0.93

ALASKA AIR GROUP, INC. ALK

6,818.10 8.02 1.00 0.96

COPA HOLDINGS, S.A. CPA

4,568.51 10.48 2.80 1.02

AIR FRANCE-KLM SA AFLYY

4,244.13 -8.11 1.79

SPIRIT AIRLINES, INC. SAVE