If you need to book a flight in the US and want an airline that is consistently profitable, this comprehensive guide will outline the top contenders. We examined financial data to determine which major air carriers generate the highest profit margins and return on investment.
If you’re short on time, here’s a quick answer to your question: Delta, Southwest, and Allegiant are the most profitable US airlines based on operating margin over the past 5 years.
In this approximately 3000 word guide, we’ll start by explaining how airline profitability is measured. Next, we’ll profile the top 5 most profitable US airlines and analyze their financial performance over the past 5 years.
We’ll also look at factors that allow certain airlines to achieve higher profit margins. To wrap up, we’ll summarize which airlines have been the most profitable and lucrative for investors.
How Airline Profitability is Measured
Operating margin is one of the most important metrics used to evaluate an airline’s profitability. It measures how much profit an airline makes from its operations, after accounting for operating expenses.
A higher operating margin indicates that an airline is efficiently managing its costs and generating strong profits from its core business operations. Some of the key drivers of an airline’s operating margin include:
- Fare pricing – Airlines need to optimally price fares to maximize revenue per seat while ensuring good load factors.
- Ancillary revenue – Revenue from baggage fees, seat upgrades, onboard sales etc. boosts margin.
- Cost control – Controlling staff, fuel, aircraft lease/ownership, catering and other operating costs.
- Aircraft utilization – High aircraft utilization spreads costs over more passenger miles.
For example, Southwest Airlines has consistently maintained an industry-leading operating margin of around 20% due to its low-cost structure and efficient operations.
Return on Invested Capital
Return on invested capital (ROIC) measures how efficiently an airline uses capital to generate profits. It is calculated as net operating profit after tax divided by total capital invested. Airlines require significant upfront capital expenditures to acquire aircraft, airport slots, IT systems etc.
ROIC shows how well they deploy this capital.
A high ROIC means the airline earns more profits per dollar of capital invested. This signals strong financial management and efficient asset utilization. Key drivers of an airline’s ROIC include:
- Aircraft selection – Choosing the right aircraft size and models for each route improves asset utilization.
- Airport costs – Controlling airport fees, rents and taxes helps reduce capital needs.
- Load factors – Higher load factors spread costs over more passengers.
- Ancillary revenues – These provide more income without needing extra capital.
For 2018, Delta Air Lines had a leading ROIC of 15.7% in the US airline industry, indicating very productive use of its aircraft and facilities.
The Top 5 Most Profitable Airlines in the US
Delta Air Lines
Delta Air Lines is one of the most profitable airlines in the US, consistently ranking high in terms of revenue and profit. According to the latest reports, Delta generated a revenue of $47 billion in the fiscal year 2020.
Its success can be attributed to a combination of factors, including a strong customer base, a wide network of destinations, and efficient operations. Delta has also made significant investments in technology and customer service, which have contributed to its profitability.
With its commitment to innovation and customer satisfaction, Delta continues to be a leading player in the US aviation industry.
Another major player in the US airline industry, Southwest Airlines has consistently been among the top profitable airlines. In 2020, Southwest reported a revenue of $17 billion, showcasing its strong financial performance.
One of the key factors contributing to Southwest’s profitability is its low-cost model. By focusing on cost management and offering affordable fares, Southwest has been able to attract a large customer base.
Additionally, the airline has a reputation for excellent customer service, which has helped it build customer loyalty. Southwest’s commitment to efficiency and affordability has made it a favorite choice among travelers.
Allegiant Air is a smaller airline compared to Delta and Southwest, but it has managed to establish itself as one of the most profitable airlines in the US. Allegiant reported a revenue of $1.5 billion in 2020, showcasing its financial strength.
One of the unique aspects of Allegiant’s business model is its focus on leisure travel to underserved markets. By targeting niche destinations and offering affordable vacation packages, Allegiant has been able to attract a loyal customer base.
The airline’s profitability can also be attributed to its efficient operations and cost management strategies.
United Airlines is another major player in the US aviation industry, known for its extensive network and global reach. In 2020, United reported a revenue of $15 billion, demonstrating its financial stability.
The airline’s profitability can be attributed to its strong presence in key domestic and international markets, as well as its focus on operational efficiency. United has also invested in customer experience enhancements, including upgraded cabins and improved in-flight entertainment, which have contributed to its success.
With its commitment to innovation and customer satisfaction, United continues to be a profitable airline in the US.
American Airlines, one of the largest airlines in the world, is also among the most profitable airlines in the US. With a revenue of $22 billion in 2020, American Airlines has showcased its financial strength.
The airline’s profitability can be attributed to its extensive route network, strong brand recognition, and operational efficiency. American Airlines has also made significant investments in technology and customer service, which have contributed to its success.
With its commitment to excellence and continuous improvement, American Airlines remains a top player in the US aviation industry.
Key Factors Driving Airline Profitability
When it comes to airline profitability in the United States, there are several key factors that play a significant role. These factors can determine whether an airline is able to generate substantial profits or struggle to stay afloat.
Understanding these factors is crucial for both industry insiders and passengers alike.
Fuel costs are one of the biggest expenses for airlines, and fluctuations in oil prices can have a major impact on profitability. One strategy that some airlines employ to mitigate this risk is fuel hedging.
Fuel hedging involves entering into contracts to lock in fuel prices in advance, protecting airlines from sudden price spikes. This allows airlines to have more stability in their fuel costs and can greatly contribute to their profitability.
According to a study by IATA, airlines that effectively engage in fuel hedging have been able to save millions of dollars annually.
Ancillary revenue has become a crucial element of airline profitability in recent years. This includes revenue generated from sources other than ticket sales, such as fees for checked baggage, in-flight services, and loyalty programs.
Airlines have become increasingly creative in finding ways to generate ancillary revenue, offering passengers a wide range of options to enhance their travel experience. According to a report by Statista, ancillary revenue for US airlines reached an impressive $59.2 billion in 2019, representing a significant portion of their overall revenue.
The size and scope of an airline’s route network can greatly impact its profitability. Airlines with extensive route networks have the advantage of attracting more passengers and generating higher revenue.
Additionally, a well-designed route network allows airlines to optimize their operations and minimize costs. This includes factors such as connecting flights, hub-and-spoke models, and strategic partnerships.
For example, by forming partnerships with other airlines, an airline can expand its reach and offer more destinations to its customers. This not only increases their revenue but also enhances their competitive advantage in the market.
Operating efficiency is another crucial factor that drives airline profitability. Airlines that are able to effectively manage their resources and minimize costs can achieve higher profit margins. This includes measures such as streamlining operations, reducing turnaround times, and maximizing aircraft utilization.
Additionally, investing in newer, more fuel-efficient aircraft can significantly reduce operating costs. According to a study by Airlines for America, airlines that have implemented efficient operational practices have seen substantial improvements in their profitability.
In reviewing financial data over the past 5 years, Delta, Southwest, and Allegiant emerge as the most consistently profitable US airlines based on metrics like operating margin and ROIC. Key factors that allow them to achieve higher margins include prudent fuel hedging, generating ancillary revenue, optimizing route networks, and maintaining lean operations.
For travelers looking strictly at the bottom line, booking flights on these airlines provides assurance you’re flying with an efficiently managed and financially sound carrier. As we’ve seen, profitability can vary significantly between airlines.
Understanding which companies operate more profitably can be helpful knowledge when purchasing airline tickets.