California-based low-cost airline Virgin America VA has grabbed the top spot among U.S. carriers for the third successive year, according to the Airline Quality Rating (AQR) report.
The report, published on an annualized basis, surveys the domestic performance of U.S. carriers. Hawaiian Airlines, a subsidiary of Hawaiian Holdings, Inc. HA, and Delta Air Lines DAL secured the second and third spots, respectively. The report is compiled by professors at Embry-Riddle Aeronautical University and Wichita State University on the basis of data submitted by carriers to the U.S. Department of Transportation. It ranks the carriers on the basis of important metrics such as on-time performance, customer complaints, denied boarding and mishandled bags.
Virgin America’s Winning Performance
Virgin America, partly owned by British billionaire investor Richard Branson, secured the top score of -0.30 among the 12 U.S. carriers evaluated in the report. We note that only those carriers that make for at least 1% of domestic scheduled-service revenues are eligible to be ranked in the report. The AQR score for the carrier, which went public in Nov 2014, was -0.32 in 2013.
According to the 2014 report, the customer complaint rate per 100,000 passengers at Virgin America has improved from 1.28 a year ago to 1.14. Moreover, the score recorded by the carrier with regard to this key metric was far better than the industry average of 1.38.
Also, the airline scored high with ratings of 0.95 and 0.09 with respect to mishandled baggage (per 1,000 passengers) and involuntary denied boardings (per 10,000 passengers), respectively. Both scores not only reflect year-over-year improvements but are also the best among all other carriers rated in the report.
A Dismal Overall Picture
The report, however, painted a bleak picture with respect to the overall performance of the airline industry in 2014 as the AQR industry score of -1.24 hit a major five-year low.
The score suffered due to weak performances on grounds of all four major indicators – on-arrival performance (down to 76.2% from 78.4% a year ago), industry mishandled baggage rate (3.62/1000 passengers compared to 3.21 in 2013), consumer complaint rate (1.38/100,000 passengers, up from 1.13 recorded in 2013), involuntary denied boardings (worsened to 0.92/10,000 passengers from 0.89 recorded in 2013). The disappointing industry AQR score basically points to the increased harassments faced by domestic fliers.
The report, which does not appear impressed by the consolidation trend prevalent in the industry, disclosed that apart from Virgin America, only Alaska Air Group’s ALK subsidiary Alaska Airlines and Hawaiian Airlines registered year-over-year improvements in their AQR scores.
Conclusion
Even though the 2014 report does not show the airline industry in a good light, we note that stocks in the space are seeing good times, courtesy of weak crude oil prices (one of the largest costs borne by a carrier). We note that although oil prices are currently displaying a marginal upward trend, prices are unlikely to touch the highs witnessed early last year. Consequently, stocks in the airline space should continue to gain over the long term with oil prices expected to remain weak and ticket prices not showing substantial change.
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