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What are we looking for?

The top North American airlines based on passenger revenue per available seat mile.

The screen

United Continental Holdings Inc. is under fire this week for forcibly removing a passenger from an overbooked flight from Chicago to Louisville, Ky. Because margins are so thin in the industry, airlines frequently overbook flights to account for no-shows and then compensate individuals who volunteer to give up their seat.

Airlines constantly work to improve their passenger revenue per available seat mile (RASM) as an indicator of efficiency, however, the social-media backlash to this incident has been significant, resulting in as much as of a 6-per-cent premarket share price decline in the stock price before Tuesday's open. The stock ended Tuesday's trading day down 1.13 per cent at $70.71 (U.S.).

RASM measures the revenue earned on actual passengers for every mile each seat has flown. Generally, the higher the RASM, the more profitable the airline. We screened for the top 10 airlines in North America by RASM.

We've also included enterprise value to earnings before interest, taxes, depreciation and amortization (EV/EBITDA), a popular multiple to measure the value of an airline company bccause of high fixed costs and significant depreciation. Typically, a lower EV/EBITDA number relative to other firms in the same industry, the better.

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What did we find?

Although any long-term backlash to the airline industry's methods of overbooking is yet to be known and the investigation into this recent incident has just begun, airline profitability relies heavily on the RASM number. The screen left us with the 10 securities (including Air Canada and WestJet Airlines Ltd.), the top five of which I've highlighted below.

  • Delta Air Lines Inc., the biggest airline in North America, also has the highest RASM of 0.1341. The stock is down about 2.9 per cent from a year ago.
  • American Airlines Group Inc. comes in second with an RASM of 0.1265. The stock is up about 10 per cent from a year ago.
  • Southwest Airlines Co. comes in third place with an RASM of 0.1252. The company is often touted for its superior customer service and its stock is up 22 per cent over the past year.
  • United Continental Holdings comes in fourth place with an RASM of 0.1240. The stock is up about 30 per cent from a year ago.
  • Hawaiian Holdings Inc. rounds out the top five with an RASM of 0.1167. The stock is mostly flat over the past year.

Readers are advised to do their own research before investing in any of the securities shown here.

Paul Hoyda, CFA, is a market specialist in the financial and risk division of Thomson Reuters and specializes in governance, risk and compliance.

Select North American airlines

CompanySymbolPassenger RASMMarket Cap (US$ Mil.)EV to EBITDADiv. Yield
Delta Air Lines Inc.DAL-N0.134133,678.44.061.8%
American Airlines Group Inc.AAL-Q0.126521,335.84.990.9%
Southwest Airlines Co.LUV-N0.125233,359.16.740.7%
United Continental HoldingsUAL-N0.124022,501.84.28n/a
Hawaiian Holdings Inc.HA-Q0.11672,582.54.12n/a
Alaska Air Group Inc.ALK-N0.113411,014.06.751.3%
JetBlue Airways Corp.JBLU-Q0.11217,088.34.42n/a
Air CanadaAC-T0.10352,707.63.19n/a
WestJet Airlines Ltd.WJA-T0.09042,
SkyWest Inc.SKYW-Q0.08951,647.86.291.0%

Source: Thomson Reuters Eikon