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Airlines use discounts to prop up losses

Sam Eaton Jul 15, 2009
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Airlines use discounts to prop up losses

Sam Eaton Jul 15, 2009
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TEXT OF STORY

Bill Radke: The discount airlines are digging deep again. Today, Southwest and AirTran are offering one-way fares as low as 39 bucks. I bring this up because the major carriers report earnings today, starting with American Airlines. And as $39 fares might tell you, the airlines are struggling again. Here’s Marketplace’s Sam Eaton.


Sam Eaton: Last year, airline profits took a hit from high fuel prices. This year, it’s the drop in business travel that’s causing problems.

Airlines typically get most of their revenue from business travel. Now, carriers have been forced to offer deep discounts to leisure travelers in order to fill seats. That’s caused revenue to plummet 26 percent, according to the Air Transport Association. And that’s fueling speculation we could see a new wave of bankruptcies reminiscent of those following 9-11.

But aviation consultant Mike Boyd says those fears are overblown:

Mike Boyd: It’s very much like seeing a car on a railroad crossing and saying boy, it’s going to get hit by a train. assuming the driver won’t be smart enough to get off of it. The airline industry is adjusting.

Boyd says major U.S. carriers are much more nimble than they used to be. They’re better positioned to cut flights and ground jets.

And then there are the new profit sources. Boyd says the fees for everything from a bottle of water to that extra bag now account for nearly 5 percent of the revenue at some carriers.

In Los Angeles, I’m Sam Eaton for Marketplace.

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