Airline profits taking off

Bob Moon Oct 20, 2010

Airline profits taking off

Bob Moon Oct 20, 2010


Kai Ryssdal: We can safely call today’s profit news from the airline industry counter-intuitive. The economic climate for the rest of us is still fairly blah, but the skies are way friendlier for the major U.S. carriers.

Today, Delta, US Airways and American Airlines reported strong earnings for the summer travel season. American posted its first profit in two years, in point of fact. United shares took off as well, in anticipation of its earnings announcement tomorrow.

The big airlines are optimistic about the rest of the year, too, never mind rising fuel prices.

Our senior business correspondent Bob Moon reports.

Bob Moon: If you’ve done any flying at all lately, you’ve almost certainly had to arm-wrestle your seatmate for some room.

Richard Aboulafia: You’re seeing load factors — the percentage of a plane that’s filled by revenue-paying passengers — above 85 percent, which is unprecedented.

Teal Group airline analyst Richard Aboulafia says the carriers have cut excess capacity by grounding planes, so they can fill seats on every flight. That tight discipline has seen them the toughest times. Now, they’re seeing higher-paying business travelers flying more. And what Aboulafia calls “clever pricing,” for everything from baggage to blankets, has produced windfall revenue.

But he concedes the industry’s recent consolidation, from six major carriers to four, has allowed that kind of “clever” pricing.

Aboulafia: There’s no question that getting airlines out of the mix definitely helps pricing power. You’re going to have some markets which just have fewer players serving them than before.

Delta commercial: We’ll prove that we’re not just building a bigger airline, we’re building a better one.

It may be no small irony that Delta’s new ad campaign features the slogan “Keep Climbing.” At the consulting firm AirlineForecasts, Vaughn Cordle says that’s what fares are bound to do.

Vaughn Cordle: Delta, for instance, has a new target: 10 to 12 percent operating margins. That means they’ve got to raise fares.

Independent aviation consultant Robert Mann sees some benefits, too. He says a stronger air transportation system should avert cutbacks that have threatened some destinations.

Bob Mann: If you’re a small community who really relies on air service to connect yourself to the network, the likelihood is you’ll continue to have that service at convenient times and frequencies.

The caveat being, it just may cost more.

I’m Bob Moon for Marketplace.

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