11 Most Profitable Airlines In The World: Will It Last?

Previously we covered the 11 most profitable companies in the world in 2015, and in this article we will focus on the 11 most profitable airlines in the world.

The first time someone actually paid to fly by plane was exactly 101 year ago. Last year the world celebrated the 100^th anniversary of the first commercial flight ever. In the past 100 years, many airlines developed and fought for the flattering title of the most profitable airline company and the most valued by the passengers. From the paper ticket to the electronic ticket, from KLM’s first scheduled flight (London-Amsterdam) in 1929 to the first scheduled biofuel flight in 2011, the airline industry is connecting nations, countries, and continents.

Have you ever wondered whether the airline industry is actually profitable? IATA (International Air Transport Association) stated that the airline industry is going to have net profit of $29.3 billion in 2015, which is significantly more than the net profit from last year ($16.4 billion). Tony Tyler, IATA’s Director General and CEO, said that 2015 is a positive year for the airline industry. When we look into average net profit per passenger, we will see that North America has half of the global profit ($18.2 billion).  There are several factors that have contributed to this, such as stronger global economy, lower fuel prices, 20% rise in the US dollar value, better load factors (more passengers, fuller planes). The 11 most profitable airlines in our list is expected to earn nearly $22 billion. We think IATA’s 2015 profit forecast is extremely conservative and actual profits will be well north of the $30 billion mark.

In the past 20 years, around 200 airline companies filed for bankruptcy protection. PanAm World Airways twice during the 1990s, Eastern Air Lines, America West Airlines, Continental Airlines, Trans World Airlines, Hawaiian Airlines… Some of the airline companies that filed for bankruptcy protection since 2000 are: American Airlines (2012), Delta Air Lines (2005), Northwest Airlines (2005), US Airways (2004), United Airlines (2002).  The longest bankruptcy  was the one of United Airlines in 2006 and it lasted for 150 days. Why does this happen? The airline industry is subject to changes in the world economy, recessions, high costs, and especially cut throat competition. That’s why company bankruptcies are more common in the airline business than most other businesses.

Don’t forget the 9/11 terrorist attacks from which the airline industry needed almost three years to recover. How do airline companies emerge from bankruptcy? For some airline companies, bankruptcy represents a chance for a fresh start. For example, American Airlines is one of the companies that recovered from its bankruptcy and now it is America’s largest airline company by revenue and fleet size. AMR Corporation and US Airways merged in late 2013, carrying the name of American Airlines Group (NYSE:AAL). The plan was to create a large airline company, like Delta Air Lines and United Airlines (NYSE:UAL), that can enjoy economies of scale and savings from synergies. So far the plan seems to be working because American Airlines is one of the most profitable airlines in the world.

The consolidation in the airline industry also attracted hedge funds to airline stocks. Delta Airlines (NYSE:DAL) was the 6th most popular stock among hedge funds according to the latest round of hedge fund filings. It was more popular than Microsoft, Yahoo, Amazon, Bank of America, and Alibaba. American Airlines was the 25th most popular stock among hedge funds. There were 114 hedge funds with Delta positions and 85 hedge funds with long American Airlines positions. It is obvious that hedge funds believe that airlines will maintain and protect their recent profitability. American Airlines are trading at less than 7 times next year’s expected earnings. Delta is slightly more expensive, trading at 8.6 times next year’s expected earnings. We aren’t too confident that airlines will remain this profitable in the future. Another price war among airlines may start again when one of the small airlines try to steal a piece of the market share from one of its bigger rivals. American Airlines lost nearly 30% of its market value earlier this year when it went head-t0-head with Southwest in Dallas and boostet seats to better compete with Southwest.

Markets are suspicious about airlines’ profitability which is why airline stocks are trading at a 50% discount to the market. Historically hedge funds were able to outperform the market averages. If history is any guide, hedge funds are likely to be proven right and airlines will make good investments. They are still risky bets though.

Anyway let’s take a look at our list of the most profitable airlines in the world which were ranked by combining data from Yahoo Finance and airlines’ investor relations pages:

11. EasyJet

$1 billion (estimated)

EasyJet had a good summer and raised its profit forecast for this year to between £675m and £700m.  This translates into a full year profit of about $1 billion.

 

10. China Eastern Airlines

$ 1.05 billion

State-owned China Eastern Airlines is expected to announce about CNY5.3 billion (or about $860 million) in the first 9 months of this year. We conservatively estimate that its full year profits will reach $1.05 billion by the end of this year. Headquarters of China Eastern Airlines is located in the Changning District, Shanghai. It’s main hubs are Shanghai Hongqiao International Airport, Shanghai Pudong International Airport, Kunming Changshui International Airport and Xi’an Xianyang International Airport.

9. Air China

$1.15 billion (estimated)

Air China is expected to announce about $1 billion in profits during the first 9 months of 2015. We conservatively estimate that it will earn another $150 in the remainder of the year and will be able to post $1.15 billion in profits in 2015.

8. Emirates Airlines

$ 1.2 billion

Emirates Airlines is located in Dubai, United Arab Emirates. It is the biggest airline company in Middle East. Company has 140 destinations and the main hub is Dubai International Airport.

7. Lufthansa

$1.25 billion (estimated)

Lufthansa earned €954 million during the first half of this year and expects to earn at least €1.5 billion in adjusted EBITDA (adjusted earnings excluding interest, tax, depreciation, and  amortization). We conservatively estimate that the German company will earn around $1.25 billion this year.

 

6. Ryanair

$1.3 billion (estimated)

Earlier last month Ryanair announced that it is expecting to earn between €1.18-1.23 billion during its current fiscal year ending March 31, 2016. We conservatively estimate that its profit for this year will be $1.3 billion, slightly ahead of Lufthansa.

5. Southwest Airlines

$ 1.58 billion

Headquarters of Southwest Airlines is located in Dallas, Texas. This company has flights to nearly 100 destinations. Some of them are: Chicago, Washington, Las Vegas, Dallas, Atlanta, Orlando…

4. United Continental Holdings

$ 2.65 billion

Headquarters of United Continental Holdings is located in Willis Tower in Chicago. United and Continental Airlines merged into United Continental Holdings in 2010. Company’s main hubs are Antonio B. Won Pat International Airport,  Denver International Airport, George Bush Intercontinental Airport, Los Angeles International Airport, Narita International Airport, Newark Liberty International Airport, O’Hare International Airport etc.

 

3. Delta Airlines

$ 2.83 billion

Headquarters of Delta Airlines is located at Hartsfield–Jackson Atlanta International Airport. It is one of the oldest American airline company. Company’s main hubs are Hartsfield–Jackson Atlanta International Airport, LaGuardia Airport, John F. Kennedy  International Airport, Amsterdam Airport Schiphol, Charles de Gaulle Airport, Cincinnati/Northern Kentucky International Airport, Narita International Airport etc.

2. International Airlines Group

$ 3.5 billion

Headquarters of International Airlines Group is located in London, UK, and in Madrid, Spain. British Airways and Iberia merged into International Airlines Group in 2011. Today, IAG serves almost 200 destinations. The company is expected to earn £2.2 billion this year.

1. American Airlines Group

$ 4.18 billion

Headquarters of American Airlines Group is located in Forth Worth, Texas. AMR Corporation and US Airways group merged in 2014, carrying the name of American Airlines Group.

Company’s main hubs are Charlotte Douglas International Airport, Dallas/Fort Worth International Airport, John F. Kennedy International Airport, Los Angeles International Airport, Miami International Airport, O’Hare International Airport, Philadelphia International Airport, Phoenix Sky Harbor International Airport and Ronald Reagan Washington National Airport.

 This was our list of 11 Most Profitable Airlines in the World with the latest data of the profits these companies made (or expected to make) in 2015.