World’s Top 15 Airlines By Operating Margin
There are numerous logical reasons that airlines with the most favorable operating margins have achieved their lofty status. But identifying traits that all of those carriers might have in common is both unfeasible and, quite fundamentally, risks missing the point. Nevertheless, there’s much to be learned by examining the airlines’ approaches that are most readily identifiable as contributing to their favorable performance.
Airlines succeed, fail or just maintain status quo for many different reasons. When the point of differentiation is boiled down to operating margins, carriers globally — from traditional network airlines to those operating under an ultra-low-cost model — have found very diverse paths to success.
In 2014, Airline Weekly published a list of the world’s top 15 airlines by operating margins (an airline’s operating profit as a percentage of its operating revenue).
Most of the carriers’ comparative data were for the yearlong period ending June 30, 2014.
Top Airline In 2014
Panama-based Copa Airlines was first on the 2014 Airline Weekly list of the world’s top 15 airlines by operating margin. Something else the airline can tout is its stellar on-time performance record of approximately 90 percent.
Dissecting the reasons behind the rankings requires analysis of the characteristics that fundamentally distinguish the carriers and their individual business approaches, encompassing essential factors such as operating model, marketing philosophy, equipment and routes, and even basic geography.
Copa Leads The Pack
First on the 2014 Airline Weekly list is Copa Airlines, based in Panama.
In purely geographical terms, a strong case can be made for the built-in advantages of Panama as a tantalizingly strategic location for global travel routes, on the iconic east/west point connecting two vital economic engines and continents, North America and South America.
However, Copa’s success goes far beyond geography. The airline operates a young fleet of highly efficient aircraft out of its primary hub at Panama City’s Tocumen International Airport, which has a sterling reputation as the most efficient airport in the region. It features greater flight frequencies and destinations than any other hub in Latin America, which are associated quite closely with Copa’s extensive schedule.
Copa has been recognized for sustained operational excellence. The airline’s on-time performance of approximately 90 percent is easily among the industry’s best. It would therefore appear that Copa Airlines not only recognizes its advantages but actively extends those advantages to its customers through savvy application of good business practices, advancing the carrier to first place among the operating margin elite.
Ultra LCCs Top The List
Ultra-low-cost carriers fared well on the 2014 Airline Weekly list of top carriers by operating margin. Spirit Airlines and Allegiant came in at No. 2 and No. 3, respectively. While European-based LCCs Ryanair and easyJet were the only two airlines in Europe to top the list.
Other carriers among the best in operating margin on the 2014 Airline Weekly list include U.S.-based Spirit Airlines at No. 2, U.S.-based Allegiant at No. 3, and Ryanair and easyJet listed as the only European-based airlines among the top 15 industry leaders in operating margin.
Spirit, Allegiant, Ryanair and easyJet are all ultra-low-cost carriers (ironically, Ryanair’s namesake ownership is a substantial investor in Allegiant Airlines). Among the hallmarks of today’s ultra-low-cost models is a certain propensity to charge fees for almost anything and everything a passenger might desire beyond the basic aggressively competitive airfare.
In the instances of these four airlines, that extensive “extra-fee” strategy has apparently paid off in terms of current operating margin, but possibly at the longer-term risk of alienating some customers who may not be good bets for continuing repeat business.
It should also be noted that low-cost pioneers Southwest Airlines, recognized and praised worldwide for its customer loyalty and consistently favorable financial performance, and Canada-based WestJet, often cited as the favorite airline of many highly cost-conscious Canadian travelers, were among the leaders in operating margin.
The two airlines, being low-cost but not ultra-low-cost, retain some salient customer-friendly characteristics that ultra-low-cost airlines simply appear to ignore. Southwest, for example, has built a marketing reputation and a frequently repeated advertising slogan on the practice of not charging fees for passengers’ first two pieces of checked luggage.
Not so for the new breed of ultra-low-cost airlines such as Spirit, Allegiant, easyJet and Ryanair.
Passengers certainly can (and many do) complain about the minimal level of service and the charges for everything from seat assignment and luggage (both carry-on and checked) to blankets and snacks. On Ryanair, for example, there’s even a fee to enter the restroom, which is not quite so out-of-bounds, since it’s a fairly familiar practice to pay a fee to use a public restroom many places in Europe.
Despite the complaints, those same passengers vote loudly with their business when they pay comparatively low airfares to fly on the ultra-low-cost airlines.
One other low-cost carrier that scored well on the 2014 Airline Weekly list is Arabia Airlines, which has parlayed a low-cost model with the Middle East geographical advantage of serving highly desirable destinations in Europe, Africa and Asia from its home base in the United Arab Emirates, as well as from subsidiary locations in Jordan, Egypt and Morocco.
Further Top Operating Margins
Other airlines among the top performers in operating margin have also followed interesting but quite diverse paths on their individual journeys to success.
Republic Airlines, for instance, presents an intriguing picture of a carrier not often recognized in its own corporate livery, but rather operating as American Eagle when flying connector routes using smaller aircraft and turboprops for American Airlines at Chicago O’Hare and Miami, as well as operating as United Express for United Airlines at Newark Liberty International Airport, Washington Dulles and Denver International Airport.
Altogether, the strategy landed Republic at No. 4 on Airline Weekly’s 2014 operating margin list.
Alaska Airlines, at No. 6, is one of the full-service carriers among the top airlines on Airline Weekly’s operating margin list. In 2014, for the seventh consecutive year, Alaska Airlines was ranked highest in customer satisfaction by J.D. Power & Associates.
One of Alaska’s business objectives is technology leadership, creating efficiencies in everyday operations and resultant significant savings. Alaska pilots, for example, perform many routine checks using tablet computers. Additionally, Alaska maintains the most extensive air-cargo operation (larger than any other passenger airline) on the U.S. West Coast.
Not a full member of any global alliance, Alaska Airlines participates in codeshare agreements with individual carriers including Delta Air Lines, American Airlines, Qantas Airways, Cathay Pacific, Korean Air and Air France-KLM.
Another of the top performers on the Airline Weekly 2014 operating margin list is Japan Airlines (JAL).
Airline Weekly’s Fourth Place
No. 4 on the 2014 Airline Weekly list is Republic Airlines, which, in addition to flying its own routes in its own livery, operates some routes for regional airlines American Eagle and United Express.
JAL’s favorable ranking might raise eyebrows simply because only a few years ago the carrier was under severe financial duress. In response to that duress, JAL fashioned a basic restructuring of its business approach, and the airline painstakingly considered departing the oneworld global airline alliance for SkyTeam, but eventually decided to retain its association with American Airlines and British Airways.
Today, JAL and American Airlines participate in what is characterized as a trans-Pacific joint venture to augment the business of Japan Airlines in the Americas and American Airlines in Asia. In addition, JAL recently formed JetStar Japan, a joint venture with Qantas low-cost subsidiary JetStar Airways.
Representing the major network carriers, both Delta Air Lines and the modern combination that is American Airlines Group (the formerly independent American Airlines and US Airways) came in among Airline Weekly’s top 15 operating margins for 2014.
They did it largely through superior performance in matching passenger bookings, aircraft configuration and flight frequency to operate more flights at or near full capacity. In addition, both Delta and American have greatly augmented revenues through user fees for numerous items including checked luggage and specific seat assignment. It’s also a well-established fact that American, Delta and all other airlines have, of late, benefited from relatively lower fuel prices.
A couple of what might be considered “wildcards” are also among the 2014 operating margin leaders, including Greece-based Aegean Airlines, which improved its profitability by steadily increasing load factors and acquiring Olympic Air in 2014, and Hainan Airlines, the largest majority-private-ownership airline (and the fourth-largest carrier by fleet size) based in the People’s Republic of China.
Hainan has aggressively grown its destinations and flight frequencies in rapidly expanding Chinese and other Asian economic regions, and it flies numerous lucrative overseas routes, including Beijing-to-Chicago.
The success stories of the airlines that have established favorable operating margins are intriguing in and of themselves. However, the capability of other airlines in various parts of the world, operating under broadly differing economic parameters and constraints, to copy or even effectively emulate elements of that success depends on the multiplicity of factors affecting the performance of each individual carrier, as well as its specific issues and challenges.
However, that does not mean there are no lessons to be learned or best practices to be recognized and applied. The airline industry is not a monolith, and further paths to operating margin success will continue to develop.
Asia-based Japan Airlines and Hainan Airlines also topped the list of the world’s top airlines in terms of operating margin. This is quite an accomplishment for JAL, which has undergone a restructuring of its business approach after a period of severe financial pressure. Hainan Airlines is the fourth largest carrier by fleet size and the largest majority-private-ownership airline based in the People’s Republic of China.