After a decade of multibillion-dollar losses, U.S.
airlines appear to be on course to prosper for
years to come for a simple reason: They are
flying less.
By grounding planes and eliminating flights,
airlines have cut costs and pushed fares higher.
As the global economy rebounds, travel demand
is rising and planes are as full as they've been in
years.
By grounding planes and eliminating flights,
airlines have cut costs and pushed fares higher.
As the global economy rebounds, travel demand
is rising and planes are as full as they've been in
years.
Profit margins at big airlines are the highest in at
least a decade, according to the government. The
eight largest U.S. airlines are forecast to earn
more than $5 billion this year and $5.6 billion in
2012.
U.S. airlines are in the midst of reporting fourth-
quarter results that should cap the industry's first
moneymaking year since 2007.
"The industry is in the best position — certainly in
a decade — to post profitability," says Southwest
Airlines CEO Gary Kelly. "The industry is much
better prepared today than it was a decade ago."
The airlines' turnaround has benefited investors —
the Arca airlines stock index has nearly
quadrupled since March 2009 — but it's been
tough on travelers.
Fares in the U.S. have risen 14 percent from a
year ago, according to travel consultant Bob
Harrell. Flights are more crowded than they've
been in decades. On domestic flights, fewer than
one in five seats are empty. Space is even tighter
over the summer and holidays. That's why it
took a week to rebook all the travelers who were
stranded by a snowstorm that hit the Northeast
over Christmas weekend.
Travelers also face fees these days for services
that used to be part of the ticket price, such as
checking luggage (usually $25 to $35 per bag)
and rebooking on a different flight (usually $150
for a domestic flight, more when flying overseas).
"I'm not averse to anyone making money —
that's great — but (to) take things away and then
charge for them, that's not right," said Rick Jellow,
an executive who travels in his job for a lighting-
systems company in Virginia.
From 2000 through 2009, U.S. airlines lost about
$60 billion and eliminated 160,000 jobs,
according to an industry trade group, the Air
Transport Association.
During that tumultuous decade, airlines were hit
with a series of events beyond their control: two
recessions; the Sept. 11 attacks; an avian flu
outbreak that scared away many travelers, and
rising fuel costs.
The industry was profitable in 2000, 2006 and
2007, when the economy was roaring. But those
boom years masked the industry's underlying
problems, including high costs and more seats
than travelers demanded. During 2008 and 2009,
airlines lost a combined $23 billion, but they were
also attacking their problems, setting the stage for
a comeback in 2010.
— They eliminated money-losing flights. When
travel demand recovered, airlines could raise
ticket prices for the smaller supply of seats.
— They grounded older, gas-guzzling airplanes.
The government says the major U.S. airlines,
plus freight delivery companies FedEx and UPS,
used 11.39 billion gallons of jet fuel in the first nine
months of 2010, down 11.4 percent from the
same period a year earlier. The price of a gallon of
jet fuel jumped 20 percent year over year, but
overall fuel spending rose just 6 percent.
— They added fees. In the first nine months of
2010, airlines collected more than $4.3 billion from
fees for checking baggage and changing tickets,
up 13.5 percent from the comparable period in
2009.
— They consolidated. Delta Air Lines Inc. bought
Northwest in 2008, and United and Continental
combined last year. That leaves four so-called
network carriers that operate from hub airports,
down from six. And Southwest Airlines Co.'s
pending purchase of AirTran Airways will
combine two of the biggest discount carriers.
Fewer airlines should mean higher fares.
Delta, Southwest, United Continental and US
Airways are expected to have earned nearly $4
billion combined in 2010. The latter two report
results on Tuesday. The parent of American
Airlines, which suffers from higher costs than the
others, said last week it lost $389 million.
The economy is expected to grow faster in 2011
and 2012 than it did in 2010, and this should give
the industry a lift. But, there are some challenges
on the horizon.
The biggest, is higher fuel prices. With oil
hovering around $90 a barrel, jet fuel on the spot
market costs about $2.60 a gallon, the highest it's
been in more than two years. This will temper
industrywide profit margins. Still, Soleil Securities
analyst James Higgins says most airlines would
make money this year even if oil hits $100.
Another factor that will determine how long the
industry's profitability lasts is how individual
airlines manage growth. Rightly, the airlines so far
have been cautious about adding more flights as
travel demand picks up. In the past, they added
flights and brought back grounded aircraft too
quickly. That led to a glut of seats and falling
airfares.
"The wild card is always capacity discipline," says
William Swelbar, a director at Hawaiian Airlines'
parent and an airline industry researcher at MIT.
"All it takes is one carrier to begin to add capacity
aggressively, and then we follow and we undo all
the good work that's been done."
Source: Http://m.cnbc.com/us_news/41238310
airlines appear to be on course to prosper for
years to come for a simple reason: They are
flying less.
By grounding planes and eliminating flights,
airlines have cut costs and pushed fares higher.
As the global economy rebounds, travel demand
is rising and planes are as full as they've been in
years.
By grounding planes and eliminating flights,
airlines have cut costs and pushed fares higher.
As the global economy rebounds, travel demand
is rising and planes are as full as they've been in
years.
Profit margins at big airlines are the highest in at
least a decade, according to the government. The
eight largest U.S. airlines are forecast to earn
more than $5 billion this year and $5.6 billion in
2012.
U.S. airlines are in the midst of reporting fourth-
quarter results that should cap the industry's first
moneymaking year since 2007.
"The industry is in the best position — certainly in
a decade — to post profitability," says Southwest
Airlines CEO Gary Kelly. "The industry is much
better prepared today than it was a decade ago."
The airlines' turnaround has benefited investors —
the Arca airlines stock index has nearly
quadrupled since March 2009 — but it's been
tough on travelers.
Fares in the U.S. have risen 14 percent from a
year ago, according to travel consultant Bob
Harrell. Flights are more crowded than they've
been in decades. On domestic flights, fewer than
one in five seats are empty. Space is even tighter
over the summer and holidays. That's why it
took a week to rebook all the travelers who were
stranded by a snowstorm that hit the Northeast
over Christmas weekend.
Travelers also face fees these days for services
that used to be part of the ticket price, such as
checking luggage (usually $25 to $35 per bag)
and rebooking on a different flight (usually $150
for a domestic flight, more when flying overseas).
"I'm not averse to anyone making money —
that's great — but (to) take things away and then
charge for them, that's not right," said Rick Jellow,
an executive who travels in his job for a lighting-
systems company in Virginia.
From 2000 through 2009, U.S. airlines lost about
$60 billion and eliminated 160,000 jobs,
according to an industry trade group, the Air
Transport Association.
During that tumultuous decade, airlines were hit
with a series of events beyond their control: two
recessions; the Sept. 11 attacks; an avian flu
outbreak that scared away many travelers, and
rising fuel costs.
The industry was profitable in 2000, 2006 and
2007, when the economy was roaring. But those
boom years masked the industry's underlying
problems, including high costs and more seats
than travelers demanded. During 2008 and 2009,
airlines lost a combined $23 billion, but they were
also attacking their problems, setting the stage for
a comeback in 2010.
— They eliminated money-losing flights. When
travel demand recovered, airlines could raise
ticket prices for the smaller supply of seats.
— They grounded older, gas-guzzling airplanes.
The government says the major U.S. airlines,
plus freight delivery companies FedEx and UPS,
used 11.39 billion gallons of jet fuel in the first nine
months of 2010, down 11.4 percent from the
same period a year earlier. The price of a gallon of
jet fuel jumped 20 percent year over year, but
overall fuel spending rose just 6 percent.
— They added fees. In the first nine months of
2010, airlines collected more than $4.3 billion from
fees for checking baggage and changing tickets,
up 13.5 percent from the comparable period in
2009.
— They consolidated. Delta Air Lines Inc. bought
Northwest in 2008, and United and Continental
combined last year. That leaves four so-called
network carriers that operate from hub airports,
down from six. And Southwest Airlines Co.'s
pending purchase of AirTran Airways will
combine two of the biggest discount carriers.
Fewer airlines should mean higher fares.
Delta, Southwest, United Continental and US
Airways are expected to have earned nearly $4
billion combined in 2010. The latter two report
results on Tuesday. The parent of American
Airlines, which suffers from higher costs than the
others, said last week it lost $389 million.
The economy is expected to grow faster in 2011
and 2012 than it did in 2010, and this should give
the industry a lift. But, there are some challenges
on the horizon.
The biggest, is higher fuel prices. With oil
hovering around $90 a barrel, jet fuel on the spot
market costs about $2.60 a gallon, the highest it's
been in more than two years. This will temper
industrywide profit margins. Still, Soleil Securities
analyst James Higgins says most airlines would
make money this year even if oil hits $100.
Another factor that will determine how long the
industry's profitability lasts is how individual
airlines manage growth. Rightly, the airlines so far
have been cautious about adding more flights as
travel demand picks up. In the past, they added
flights and brought back grounded aircraft too
quickly. That led to a glut of seats and falling
airfares.
"The wild card is always capacity discipline," says
William Swelbar, a director at Hawaiian Airlines'
parent and an airline industry researcher at MIT.
"All it takes is one carrier to begin to add capacity
aggressively, and then we follow and we undo all
the good work that's been done."
Source: Http://m.cnbc.com/us_news/41238310
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