One of the recurring themes that I hear when visiting Senators, Representatives and staff in Washington, DC, is, “Well the airlines need to make a profit, they’ve been losing money for too long.” There are plenty of legitimate retorts, however, $3.9 billion in quarterly profits means it’s time to stop feeling sorry for the airlines.
I know. I know. Every airline isn’t pocketing lots of jingle and that many of these big profits are coming from the likes of Iberia and other international carriers. But, overall the industry is not suffering. It is in growth mode as economies begin sputtering back to life and the effects of the Iceland-volcano-induced interruption of airline service recede.
Let’s treat airlines like profit-making entities instead of like wards of the state. If the last decade was a disaster for major airlines, the next decade is shaping up to be nirvana unless we are faced with an unexpected oil shock and a series of volcanoes.
What about North American airlines, the poster children for money-losing operations? They haven’t been faring too badly as well, with $1.74 billion in quarterly profits. Guess where $750 million of that profit is coming from — baggage fees.
North American airlines earned $1.74 billion in the quarter to lead the world’s regions (ATW Daily News, Aug. 18), turned around from a $514 million deficit in the three months ended June 30, 2009, the organization said in its latest “Airlines Financial Monitor.” Asia/Pacific carriers followed with a $1.16 billion second-quarter profit, rebounding from a $322 million loss last year. European carriers posted a $1.02 billion profit for the period, but IATA noted that figure was boosted by $1.27 million in asset sales gains primarily by Air France KLM related to the sale of holdings in Amadeus (ATW Daily News, July 28).
The airlines have control of their capacity for both passengers and cargo. Business trends are on an upswing, be it mild. That means more traffic for both cargo and passengers. Planes are coming out of storage and new aircraft orders are up. Load factors are up. Oil prices have been stable for most of the year, hovering around $75 a barrel. Airline fees are growing exponentially.
All this means that profits are rebounding even if the economies are not in tip-top shape.
Add in the shift in the competitive structure of the U.S. airlines with only three big carriers, Delta, United and America (OK, four if you count USAirways) that control 70 percent of the domestic market. Then add in the new world of international travel where three alliances — Oneworld, SkyTeam and Star Alliance — control 85 percent of the international traffic. The result — coming big profits for airlines and big problems for consumers and corporate travelers who are going to have to fork over more of their earnings for air transportation.
(Photo: © Leocha — Over Venice)