What are we looking for?
Since hundreds of thousands of us will be embarking on our trip to sunny climes for the annual winter vacation, my colleague Sean Pugliese and I thought we would take a look at the North American airline industry.
We need to preface today’s screen with one of those Warren Buffett quotes that says: “How do you become a millionaire? Make a billion dollars, and then buy an airline.”
For those of you who can’t fight the urge to own an airline, today’s screen will be helpful.
We selected only those airlines that had a market capitalization of $500-million or more, and we ranked these companies in order of their break-even load factor.
This is the percentage of seats that must be filled in order for the airline to break even.
You can see that WestJet breaks even with 74.1 per cent of seats being filled, while United needs 94.3 per cent.
The load factor is the percentage of seats that were actually filled as of the latest quarter.
Florida-based Spirit Air, which offers low base fares with a range of optional services for a fee, operates 12.5 percentage points above its break-even load factor.
Spirit prides itself on being environmentally friendly, as it burns less fuel per seat than any other airline.
We also looked at the revenue per passenger mile.
This is the average amount that a passenger pays to fly one mile, in cents per mile.
We then compared that with the cost per passenger mile.
Since Toronto’s Pearson Airport holds the distinction of having the world’s most expensive landing fees that are charged to airlines, it is no surprise that Air Canada and WestJet rank No. 1 and No. 5, respectively, in that category.
The price-earnings ratios shown in the screen are forward-looking based on Bloomberg estimates as of the latest quarter.
Since Air Canada has negative earnings, the P/E is not applicable.
What did we find?
Utah-based SkyWest, Alaska Air (which flies throughout Canada and the United States), WestJet and Spirit rank well ahead of the others.
With all due respect to Mr. Buffett and in fairness to the airline industry, it’s also worth noting the share price of WestJet has climbed 73 per cent over the past 12 months, compared with 16 per cent for Berkshire Hathaway.
Major airlines stocks
|Company||Ticker||Recent price ($)||Market Cap ($-mil)|
|Alaska Air Group||ALK-N||41.81||2,939.80|
|US Airways Group||LCC-N||12.47||2,025.70|
Source: Wickham Investment Counsel Inc., Bloomberg. All dollar figures in local currency
|Company||Ticker||Recent price ($)||Market Cap ($-mil)||P/E||Load Factor||Break-even Load Factor||Rev. per Passenger Mile||Cost per Pasenger Mile|
|Alaska Air Group||ALK-N||41.81||2,939.80||8.07||86.9||78.96||15.35||12.12|
|US Airways Group||LCC-N||12.47||2,025.70||4.47||84.9||87.72||16.04||14.07|
- Spirit Airlines Inc$43.82-0.11(-0.25%)
- WestJet Airlines Ltd$21.49+0.49(+2.33%)
- SkyWest Inc$23.72+0.22(+0.94%)
- Alaska Air Group Inc$70.53+0.10(+0.14%)
- JetBlue Airways Corp$19.84+0.05(+0.25%)
- Delta Air Lines Inc$42.17+0.50(+1.20%)
- Southwest Airlines Co$44.01-0.60(-1.34%)
- United Continental Holdings Inc$46.66+0.85(+1.86%)
- Allegiant Travel Co$159.21-1.36(-0.85%)
- Updated May 2 4:00 PM EDT. Delayed by at least 15 minutes.