How airlines weather the cost of catastrophe
Share Now on:
After taking a big hit from Sandy, the airlines are bracing for yet another storm. This time, it’s a nor’easter heading toward the same area struck by Sandy. By some estimates, the airlines will be grounding about a thousand flights while waiting for the storm.
But good luck getting an insurer to cover those losses, said aviation consultant Mike Boyd.
“Nobody in their right mind would take such a risk,” Boyd said. “When you fly an airplane, you are at the mercy of mother nature and that’s not a really good thing to try and insure against.”
So if there’s no insurance, then what? Annette Fuentes, who lives in the San Francisco Bay Area, has a theory. Before Sandy, she’d been shopping for airline tickets to New York. And then Sandy hit. Her mom’s house was destroyed, and she started looking for tickets again. But this time, Fuentes says, “It seemed like suddenly there were charging a whole lot more.”
She believes airlines are making up for their losses by “price gouging.” But aviation analyst Richard Aboulafia dismissed that notion.
“There are no monocled, top-hatted billionaires in the back room saying, ‘Ah, an opportunity to charge people more.’ No, that doesn’t happen,” Aboulafia said.
These days, algorithms set prices based, in part, on supply and demand. Aboulavia says the truth about how airlines minimize loss is way more boring. “The most important thing airlines can do is to move their planes and employees out of the storm,” said Aboulafia. “Not only do you not want aircraft damaged from the storm.”
Airlines also want to make sure that planes and crews aren’t stuck in the storm. If they are, they can’t service other routes where the weather’s fine.
“You’re still making payments on the jets and paying the salaries of the people,” he said. “You can’t tell people ‘Go home; we’re not paying your salary, there’s a storm.’”
Beyond these measures, there’s just no silver bullet that can protect airlines from Mother Nature.
We’re here to help you navigate this changed world and economy.
Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.
In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.
Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.