Topic of the Week: Airline Earnings (or Lack Thereof)


Airline earnings have started to roll in with American and United posting losses, Southwest and JetBlue barely squeaking out profits, and Alaska posting rock star record earnings. (What the heck is in the water up there?) Thoughts so far?

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21 comments on “Topic of the Week: Airline Earnings (or Lack Thereof)

  1. I don’t doubt that Alaska made a huge profit. I was in ANC in January. This was before the Iditarod, before the Cruise season, in the middle of winter, and there was absolutely nothing going on. and yet, every flight, on every Airline, to and from every city was packed. I saw a crowd of standby’s running from Gate to Gate at 2am trying to get out of there. Their chances of a seat did not look promising

  2. The high ticket prices in Alaska and the money they make on shipping cargo around the state helps to pay the bills to cover having to match low fares in the lower 48. The other airlines really don’t have anywhere they can charge high fares with a monopoly on the market like Alaska can in the state of Alaska.

    1. Everyone wants to chalk it up to high fares in Alaska, but remember…most of those routes into the bush would never make money without cargo. In fact, most of them break even because on the way back to Anchorage, they are carry no cargo or passengers. SEA-ANC is not enough to carry an entire system of profits.

      If you dig into the numbers you’ll see that AS had a lower yield in the first quarter than American by nearly a dollar. I would point to AS’s cost structure before pointing to what everyone always thinks is the gold mine in Alaska that is a cash cow. AS wouldn’t be considering putting Q400s into intra-Alaska if they were printing money with 737s.

      Hawaii service has been the real boost, and running an on-time operation and providing industry leading customer service is really what is driving fuller planes and higher fares. Not the state of Alaska.

      1. Totally agree. The intra-Alaska service has been in place for years and hasn’t changed much, so it would be odd that it would suddenly drive a big Q1 profit, especially given the recent rapid expansion of Hawaii flying.

        1. Does Alaska benefit from any EAS service? Or does EAS mainly go to the smaller regional airlines in Alaska?

          1. Yes the 2x weekly SEA-ADK service is EAS. The one times daily service through CDV, YAK and PSG, WRG is also EAS. I think it’s more necessary for the cargo haul to those cities than it is for passenger service. Hardly any pax get on or off in those locations on the thru flights that connect there.

      2. Cargo and freight on AS was merely 2.5% of their total revenue for the quarter. Passenger revenue was 91%. The cargo and freight isn’t saving Alaska Airlines. They’re running a great operation, have great customer service, and have their costs in line.

  3. Yes, Alaska Cargo does it. JetBlue has seen some benefit from it’s many new interlines at JFK.

    AA will feel something the day Megabus comes to Dallas. Until then, AA is not going anywhere (with so much cash on hand)

  4. Interested for US next week, primarily because they do not hedge and want to see what the impact has been and will be…

  5. Fuel has to be one huge issue.

    Do you think the airlines have cut back capacity too far and that is hurting the bottom line?

    Limited capacity can drive up fares but that doesn’t equate to revenue. Many people simply won’t fly or will reduce their flying. I”m not going to fly PHX-BWI for $500 but $300 and under is a gimme. I know airlines can reduce airfares if people aren’t buying but the casual flyer often has to plan ahead of time due to family and work commitments.

    The question is at what point profit occurs. Is it better to average 80% capacity on more flights or 90% on less flights?

    Without seeing the numbers I have no clue :)

    Personally my first trip of the year will be in May (international). Last year I flew 18 R/Ts. This year US Airways fares from PHX have not been competitive. It seems like the best bargains have been on CO/UA/DL especially going to London.

    1. $300 may be a no-brainer, but in this fuel climate, that’s likely a money-loser. (Just using theoretical numbers here to match yours.)

      Your claim that many people won’t fly with higher capacity, but that’s the point. Anyone could fill airplanes with $1 fares but they can’t make money at that price. So, fares have to go up high enough that it will cover costs. If capacity stayed high, then fares couldn’t rise because there would be too many empty seats. So having less capacity makes this whole thing work.

  6. It’s is only a matter of time before Frontier, Jetblue, Alaska, and Virgin America gets bought out or merged. These airlines have shown almost always that they either loose money or make very little during the quarterly reports. If they have ever showed signs of making hundreds of millions like Southwest, US Airways, United, or DELTA did last quarter it would be a different story. But it is not and I think the plug may be pulled (merged/boughtout/whatever) on all these guys before the year end or next year.

    1. I do not think that is the case Don… JetBlue does well for itself, and Alaska just made record profits. Frontier just went through a Merger, and has been doing well. Virgin America is on the sketchier side, but really, who is there to merge with?

      United and Continental are busy with their merger, Delta just finished up its Northwest merger (quite smoothly, I might add) and is not really a good match, Southwest and AirTran are planning their wedding, and American is in no position to be joining bank accounts with anyone with a lower cost structure than themselves (read: pretty much everyone).

      I just do not think that any of the airlines you mentioned are ready for a merger. I suppose if they were US Airways is always up for a fling, but I really don’t see that happening either.

      1. Okay. I was wrong about Alaska. I admit it. But come on; when has jetblue ever turned a huge profit to make their investors ROI big. I don’t think they have. And Virgin doesn’t seem to be ever doing good. With all their hype and a great product they spin bad news into great news. I don’t see them pulling out a profitable year in the next two years. These two airlines will not (IN MY OPINION) be around two years from now.

        This is just MY opinion. I am not a massive researcher or travel expert.

  7. A quick look at the airlines that grew their revenue per flight hour, per flight day, per flight month or per flight quarter yields the answer. Growing Throughput (Revenue – Truly Variable Costs) per Constraint Unit (Airlines are limited by their Constraint Units which are flight hours) is the answer to profitability. An airline cannot shrink to profitability, nor minimize costs to generate revenue. But, an airline can grow Throughput per Constraint Unit to increase profitability. See; Throughput Accounting on Wikipedia. Look for Throughput (Revenue – Truly Variable Costs) Growth per Flight Hour as the key to sustained profitability. Cheers, Captain Spuds MacKenzie

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