The following report looks at the projected sales forecast for low-cost airlines verses the national carriers. Projections for Southwest & Spirit Airlines, as well as Delta & American Airlines were created by SalesForekast™.
This is a highly competitive market where the advent of low-cost airlines expanded the penetration of air travel.
Globally, the passenger miles have been growing at 5.5% over the last 10 years (3% in North America).
The market demographics have been changing slowly with two segments driving low cost airline growth: millennials and a new target group specifically looking for low frills tickets.
Further, start-up style air carriers are able to compete against national firms by challenging the old pricing strategies. Low cost carriers sell no-frill tickets on shorter routes in order to gain market share. Younger consumers are drawn to the low price knowing that their ticket may include no more than just the seat.
SalesForekast™ analysis suggests that major airlines will have greater revenue uncertainty as the range of high, low, and best-fit scenarios are spread much wider. In contrast, low-cost airlines project a much more steady and optimistic growth scenario.
A comparison of macro-economic indicators, between national carriers and low-cost airlines, reveals a significant difference regarding the economy's primary effects on future company growth.
National carriers tend to be affected more by employment indicators, specifically manufacturing employment trends.
The low-cost airlines, in contrast, tend to be more influenced by GDP (Gross Domestic Product) and personal consumption.
This reflects the use of national carriers by business travelers, where convenience is more valuable. Parts of the industry are shifting to further accommodate younger generations, and older strategies used by national carrier must be reevaluated.
For the specific airlines:
Delta sales are projected to decline when correlated against the current forecast for macroeconomic trends.
SalesForekast™ is unable to graph United Airlines due to no macroeconomic correlations. This suggests that other factors have a greater influence on the firm's revenue, such as competition.
Southwest Airlines, based on projections from SalesForekast™, will see an increase in sales revenue compared to their historical data. The projections suggest that job growth, including governmental employment, will likely determine future sales.
Spirit Airlines is likely to experience revenue growth based on future projections from SalesForekast. After correlation with macroeconomic indicators, Spirit is projected to perform better than their historical data suggests by the best-fit line.
What does this mean for investors?
Although it is impossible to know the future, SalesForekast™ projections suggest that low-cost airlines will perform better from a top line growth perspective than the larger national carriers over the next 3 years. Growth from budget airlines has challenged these national carriers to adopt new strategies to remain relevant. Both national airlines and budget carriers are affected slightly different from macroeconomic indicators implying the previously mentioned shift in industry demands. It remains to be seen whether these projected trends will come to fruition, but SalesForekast™ offers a potential glimpse into future based on previous trends.
SalesForekast™ correlates historical sales or market capitalization data with over 30 selected macroeconomic indicators to project data for future quarters based on the forecasts for the macroeconomic indicators that drive the company’s sales or market cap.