Discount carriers JetBlue (NASDAQ: JBLU), Southwest (NYSE: LUV) and Frontier – a subsidiary of Republic Airways Holdings (NASDAQ: RJET) rank among the top airlines in terms of quality and service, despite their small size – showing these medium airlines are proving formidable foes to traditional carriers.
The much larger airlines – American (NYSE: AMR), Delta (NYSE: DAL), United (NASDAQ: UAUA), and US Airways (NYSE: LCC) – ranked the lowest in customer satisfaction, in that order. The survey indicates that older airline fleets and legacy employees tended to cause negative consumer perceptions.
That’s according to a new USA Today analysis of Transportation Department consumer complaints, consumer reports of Zagat Survey and J.D. Power and Associates, and the Airline Quality Rating system of professors at Wichita State and Purdue universities. All the reports were mostly consistent in identifying the airlines’ overall performances.
While certainly a blow to the big-name carriers, the news isn’t really that surprising. The traditional airlines have huge overheads, such as high labor costs, larger fleets, more connecting flights and international routes. To maintain or increase profits, the result is passing that bill to their customers, with paying for baggage and better coach seating being the prime examples. Smaller airlines don’t bother, and tout their strength of service and no fees with customers.
That strong consumer satisfaction and loyalty is showing up in the airlines’ profit margin. JetBlue and Southwest – both just a decade old – have posted strong earnings compared to their big-boy competitors, all during the last two years of an economic downturn in which travel was on the decline. JetBlue’s second-quarter profit was $30 million (10 cents a share), compared to $20 million (7 cents a share), in the same period a year ago.
Southwest reported second quarter 2010 net income of $112 million ($.15 per diluted share), compared to net income of $91 million ( $.12 per diluted share) for the second quarter last year. A mainstay at the company since 1986, CEO Gary C. Kelly is a respected leader, named one of the best CEOs in America for 2008 and 2009 by Institutional Investor magazine. Though he’s only been at the position since 2008, he’s carried the company through difficult times. LUV is up +6% since the end of August.
Traditional carriers, however, are recently getting back on their feet. While UAL Corp (UAUA and US Air have seen big gains in share price, the truth is a little more complex. In fact, they’ve only recently returned to profitability. LCC has been down consecutively in its earnings report for years, with its only recent positive EPS +1.34%. UAUA may be up +68% year-to-date against the Dow and Nasdaq, but its EPS was down the last three quarters as well. It’s up +1.95 in the second quarter of this year.
The United and Continental Airlines $3.2 billion merger set for Sept. 17 could also help JBLU and LUV. If the new airline — to be the largest in the U.S. – shuts down hubs in smaller markets, something analysts expect, closures may help the discount carriers even further.
If consumers remember the discount carriers’ quality service, they’ll return again and again, and keep pushing the stock up. Customer kudos and loyalty is a win for the little guys – even as the big guys prepare to reload.
As of this writing, Burke Speaker did not own a position in any of the stocks named here.
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