Fuel Cost Hamper Airlines Profits...

[trek737]

The International Air Transport Association forecast global airline profit of $18 billion for 2014. "That sounds impressive," said Tony Tyler, CEO of IATA. "But the brutal economic reality is that on revenues of $746 billion we will earn an average net margin of just 2.4%. That's less than $6 per passenger." Brian Pearce, chief economist for IATA, also said fuel costs take a large bite out of operational costs. "Airlines have been living through the most persistently high period of fuel prices that they've ever seen," said Pearce. The Wall Street Journal (tiered subscription model)

[JMAC]

A couple of days ago I was telling someone about the fuel crisis in the 70's and that one or more airlines stripped the paint from their aircraft. You can imagine that it was an amount of paint that weighed hundreds of pounds. Maybe they will go au naturel again.
That amount of polished aluminum makes a pretty bird...IMO.
In another industry, if the price of gasoline in a year's time were to vary by just one penny/gallon, that's an $8million difference to the USPS (U.S.Postal Service)

[jdandy]

The airlines don't bother to mention the billions of dollars a year wrangled from passengers for checked baggage, over sized baggage, carry on baggage, and ticket changes. None of that costs the airlines a fraction of what the routinely frisk from passengers.

[antipop]

Originally Posted by trek737

Brian Pearce, chief economist for IATA, also said fuel costs take a large bite out of operational costs.

No kidding! I'm sure airplane amortization is a huge one too. Thank god they hired an economist for that.

It's not fuel the biggest problem. It's the race to zero that they've entered into. Zero comfort, zero service, zero care, zero room and all the nickel and dime'ing.

Flying coach feels like this :


Add to this the new security checks and TSA agents attitude and now you understand why people hate flying.

Sadly, there are no more glamour in flying and it's not coming back unless you're in first.

[W9TR]

Race to zero for sure! It's crazy. I think the person next to me on the last flight had a live chicken in their carry on.

Airlines are one of the few industries where the cumulative historical profits are negative. Over time, the sum of all income statements in airline companies results in a negative number.

I recently priced tickets from MSP to Den, about 900 miles. SW fare was $350. It is cheaper to fly than drive based on fuel cost alone!

Now with 4 mega airlines in the US, they may have a chance at making a buck. But I don't think the customer experience will change until prices double.

[-E-]

Prices will double with the experience worsening. Oh Oligarchy!

[JMAC]

My father was in the airline business his entire working life. I think they have operated on a shoestring forever. I know all the fees these days are awful, but:

FWIF: A Google search just now - 1st hit is from The Economist, 2/23/14

"But though the industry has done much to connect the world, it has done little to line the pockets of the airlines themselves. Despite incredible growth, airlines have not come close to returning the cost of capital, with profit margins of less than 1% on average over that period. In 2012 they made profits of only $4 for every passenger carried. Why has a booming business failed to prosper? - See more at..."

That said, I haven't flown anywhere in decades.

I, remember, in the 70's, asking my dad if it was true that one engine on a DC8 cost a million $. He said , yeah, with all the accessories, that was about right...In the 70's.

Around that time I read somewhere that the new 747's were $60 million.

HERE IS A SCREEN CAP I JUST TOOK FROM BOEING SITE:

And, having just seen this list for the first time, here is a thought: Say a person was worth $70,000,000. And it was all in cash.
He (or she) couldn't buy, outright, a singe plane on this list. Couldn't come even close for any but the 737's. o m g
Just sayin

[FlashG1]

If there is no profit in the business, why are the companies and shareholders in the business? For the romanticism of flying?

[antipop]

Originally Posted by FlashG1

If there is no profit in the business, why are the companies and shareholders in the business? For the romanticism of flying?

Managers because they are still well payed. Shareholders because they believe the future will be different from the past or they're just trying to recover their cost.

If the share price correctly accounts for the margin level, then it's not a bad investment. Good company does not make a good stock, and a bad company does not make a bad stock.

[Alki]

Originally Posted by jdandy

The airlines don't bother to mention the billions of dollars a year wrangled from passengers for checked baggage, over sized baggage, carry on baggage, and ticket changes. None of that costs the airlines a fraction of what the routinely frisk from passengers.

None of these fees changes the equation other than if they did not have them the actual price of the ticket would go up. Airlines just do not make great profits.

Based on the amounts we pay for audio equipment and the margins that are built into high end audio gear, nobody here should really complain about the economics of the price of an airline seat.

Keep in mind that the U.S. Government heavily subsidizes the airport system and this is not even directly added into the cost of the ticket.