Topic of the Week: Airline Earnings and a Sea of Black Ink

Airlines are making a bunch of money this quarter (well, except for American). Anything in particular catch your eye as each airline rolls out earnings reports? Let’s talk about it here.

(Visited 19 times, 1 visits today)

Get Posts via Email When They Go Live or in a Weekly Digest

Leave a Reply

33 Comments on "Topic of the Week: Airline Earnings and a Sea of Black Ink"

avatar
Sort by:   newest | oldest | most voted
DGS
Guest

Only thing that stands out is American not making money…

Ed
Guest

Although airlines are making money overall, they still don’t make a rate of return that compares with most other companies.

Ryan
Guest

AS had a pre-tax profit margin of 10.6% and a return on invested capital of 10.7% for 2010. That’s pretty healthy margins for a service industry company.

Sanjeev M
Guest
Airlines are never going to make a return like other service industries. It’s an inherently low-margin business subject to ridiculous government policies. I mean think about it, we don’t have even have unrestricted international transfers in this country! (i.e. LHR-EZE via MIA for two hours). Why do people making international connections have to go through US immigration? When I go to India via Heathrow, I don’t have to go through UK immigration in either direction. Government stupidness is why we have the stupid fees in this country. Even ailing airlines in Europe still offer first bag free, and Lufthansa Group… Read more »
Ed
Guest

I refer you to Ryan’s reponse. Alaska is an example that the airline industry can make a better return on investerd capital than most do now.

iahphx
Member
It’s the most dangerous phrase in investing, but I do think it’s different this time for the airlines. They will be more profitable in the next decade than they have been in the last. The primary reason is that the industry has become more like an oligopoly. Stiff competition isn’t good for profitability. Think of UAL, for example. I would submit that, as the largest airline in the world, they don’t really have a major PRICE competitor these days. Sure, they have competitors, but not those who are likely to compete on price with them. Like is anybody really likely… Read more »
David SF eastbay
Member

They are making money because of added fees and not by the price of a ticket. All the winter cancels will hurt them so does that mean higher fees to cover it all?

trackback

[…] This post was mentioned on Twitter by Brett Snyder, Sony Travels P. LTD. and Jim O'Donnell, The Explorateur. The Explorateur said: RT @crankyflier: Topic of the Week: Airline Earnings and a Sea of Black Ink http://dlvr.it/FHmGz (Cranky Post) […]

FrankV
Guest
Amazing that AA continues to lose money…their fleet of MD80 is a study in antiquity, and their new policy on standby is insane: I was recently booked on the last flight out of a city, but was sitting around when the next-to-last flight was boarding. I offered to go early, since I was there, and they had empty seets, but insisted on $50. I declined. The last flight out was filled, and there were people who could not get on. So, rather than fill an empty seat, they held out for $50 they never got, the plane left with the… Read more »
AndyM
Guest

Frank, the thinking behind the $50 policy, is that in the past passengers have booked the later(cheaper) flight and shown up for the earlier flight to see if there’s open seats. I agree that your situation could’ve helped them out, but these policies are result of passengers abusing pricing models. AA definitely isn’t the only airline that does this.

danwriter1
Member
Buying “back-to-backs” and other tricks might be “abusing pricing models” but trolling for lowest published fares and then buying them isn’t, nor is booking the last flight out but hoping to stand by for an earlier one. In the crazy, algorithm-fueled universe of airline tx pricing, it’s considered strategy. Stand-by is inherently a crap-shoot but I’d rather have that remain a no-cost option and do the homework on loads (FT, EF, etc.). Actually, American’s $50 confirmed standby fee is one of the few that I don’t mind since it’s an opportunity to opt out of the game at a lower… Read more »
Nick Barnard
Member
This really could’ve been one of a few things: 1. The airline doesn’t empower front line personnel to make smart proactive decisions. (e.g. If the gate agent would’ve checked the last flight, and noted the likelyhood of having to bump people, they could’ve made this switch.) 2. The gate agent didn’t care enough to check. 3. The gate agent did check, and in her reasonable estimation the flight was not going to have to bump people. (Remember, airlines often and regularly overbook, and even if a flight is overbooked it doesn’t mean everyone will show up.) Unless it was number… Read more »
Bill Hough
Guest

Best quote came from WN:

‘I’d rather have a customer than a bag fee’
http://travel.usatoday.com/flights/post/2011/01/southwest-fees/139690/1

Trent880
Guest

Sounds nice, but if WN’s operating margin is around 8%, and their average fare is $131, that means that passenger will give you about $10, far below any bag fee ($15-25) which is almost pure profit. Now would anyone prefer $10, or $20?

IHSW
Guest

The extent to which WN’s marketing department has grown into a medusa that rules the airline to the point that it walks away from free money is a study in misplaced priorities.

Bill Hough
Guest

WN obviously understands that people like to be treated fairly and not nickel-and-dimed to death.

Marshall
Guest

Their business model is fueled off high volumes of pax so they’re not aiming for just 1 passenger per dropped bag fee, they’re generating excitement by the crowds to hop on affordable airline travel.

wjboll
Member
I agree with FrankV. I am an EXECPLAT and I booked a flight at the last minute so I rode in coach. I reserved 9D (on a Mad Dog) and I tried to move to 7D (bulkhead). The entire row was not reserved. Asked the TA and she said it would cost $$$. Asked an AAngel in the club and was told the same thing. I boarded and asked the FA and she said sure sit there. So AA pisses off a top tier and loyal flier hoping someone will buy the seat upgrade. Their policies have pissed me off… Read more »
Fred
Guest

How did Alaska manage to be so profitable, especially since they didn’t really cut back on growth like other airlines? True, they have very few flights in the northeast with winter storms and such, but there has to be more than that…

Ryan
Guest

Hawaii, fuller planes than last year, cutting unprofitable routes, better revenue management strategy, and #1 on time percentage combined with all the things that make AS better than others like industry leading customer service, award winning mileage plan program, ability to compete with WN head to head, and a relatively young single type fleet. Addition of first bag fee didn’t hurt.

Bob
Guest

Sounds like you’ve partaken of a few glasses of the kool-aid recently. While I agree with pretty much everything you say, it does sounds like your a corporate drone at Sea-Tac.

I’m a bit surprised that no one has mentioned the QX re-branding, and potential entry into the State of Alaska. These two seem really big to me, above and beyond any other announcement that came out of any of the earnings calls.

Nick Barnard
Member
I heard of the QX rebranding from a former QX (and current AS) employee. I see it as just more smart management from AS. Its driven around marketing costs and the simple fact that marketing two airline brands just doesn’t work. (Examples include Frontier/Midwest, United/Ted/Shuttle by United, Delta/Song/Delta Express, US Airways/Metrojet, Continental/Continental Lite, did I miss any?) Unlike Proctor & Gamble who manage multiple brands within the same product category the tight costs and reduced ability to shift the production equipment between brands really dooms this as a viable strategy. These are $30 million pieces of equipment, not diapers folks..
Nick Barnard
Member

Err, I missed something, I should’ve said: I heard of the QX rebranding from a former QX (and current AS) employee last week.

Steve Ly
Guest

Qantas and Jetstar? OH, that works.

Nick Barnard
Member

@Steve Ly Well thats in Australia where the market conditions are different.

Is there as much competition there as there is in the US? I took a peek at a random sample of airlines in Australia, and most of them operate planes that would be considered regional airliners, or even smaller than that. It doesn’t seem that there is the same level of competition…

Nick Barnard
Member

All that, plus the simple fact that they’ve also got lots of intra-Alaska flying and to Alaska flying. Both of which has a big revenue premium.

I’d also say they’ve made a point of smart outsourcing. Everything below the wing in their Seattle hub has been outsourced to Menzies Aviation.

One other thing I’d also point attention to is some innovation. They’ve done a nice job with the “Airport of the Future” work (an article on it: http://www.fastcompany.com/magazine/123/hustle-and-flow.html ) Its not just fluff folks, I’ve used it and its a very nice quick experience.

Nick Barnard
Member

An aside, I think the airport of the future thing is something other airlines can and should get behind, even in smaller airports where they’d have to share the center belt. It’d be easy enough to put signs behind them of the airline to give them a more “individualized” look.

Oh, and I wonder if they’ve had a reduction in medical/workers comp claims from not having agents lift the bags.

Heather
Guest

Cranky, thanks for the detailed and insightful posting.

Dan
Guest

For the record, on Fridays, Cranky only posts a discussion started topic. Detailed and insightful postings come out Mon, Tues, and Thurs.

Dan
Guest

oops. Should read “Cranky only posts a discussion STARTER topic.”

Brad
Guest

Years ago Michael O’Leary President of Ryanair said in a magazine interview, that one day they and other airlines would not make money on ticket sales but rather on fees and sales of products. It seemed like a strange idea at the time, but now we are there. Most airlines now make the profit on fees, pretty much all their profit. The low ticket prices just do not pay the bills. So like it or not. This is the model in place and will most likely remain so.

Luxury Safaris
Guest
Some good comments, particularily from Nicholas. It is quite sad the situation pointed out by Brad though and I do agree he is right, but when all profit is made on services and not on the ticket price, you do start to wonder how far companies are off charging for every little service as an addition. Look at the pardody show “come fly with me” on in the Uk currently where the spoof ryan air / easy jet passengers have to pay to activate their life jackets when they crash using a chip and pin terminal, im starting to wonder… Read more »
wpDiscuz