The airlines industry — in aggregate — hasn’t made money.
Think about that for a second.
There have been some brief periods of prosperity, but longer stretches of losses … some pretty deep.
Makes sense when you think about the number of airlines that that have consolidated, gone through bankruptcy or fallen off the radar screen (think, Pan Am, Eastern, TWA)
The irony is that we feel gouged by airlines … especially when they start charging us for bags and peanuts.
Side note: “ancillary revenue” supplements the flight by another $18 per person on a 100-passenger flight.
That includes fees for checked baggage, seat assignments, ticket penalties and revenue from cargo.
According to the Bureau of Labor Statistics, baggage fees for the U.S. airline industry last year totaled a hefty $3.4 billion, or roughly $5 for every passenger boarded.
Cancellation and change fees totaled $2.4 billion, or more than $3 for every passenger.
What’s the problem?
First, there are pricing pressures.
In the past 15 years, fares haven’t come close to matching inflation.
In other words, “real” prices in the industry have stayed flat or declined.
That makes sense …
In the airlines, there’s a huge amount of capacity … something close to a commodity product … with high fixed costs and virtually no marginal costs.
Since one more passenger.doesn’t cost you anything except, maybe a cup of coffee, there’s great temptation to sell seats at rock bottom prices — just to fill them.
Further, there’s the Southwest factor. Legacy airlines (think United or American) have big infrastructures, huge hub-and-spoke networks, old fuel – inefficient planes, and high cost, unionized employees. Southwest’s cost-effective operations — point-to-point network, fuel-efficient 737s, happy employees — changed the pricing game.
Then, think about fuel costs — generally high, and subject to wide, unpredictable swings.
According to the WSJ, “fuel now is by far the biggest cost for airlines. , the tickets and fees of 29% of passengers pay just for the fuel to make the trip.
Airline gas mileage has improved over the years, the result of filling more seats on each flight, replacing multiple trips on small planes with fewer trips on larger aircraft and replacing older planes with newer, more fuel-efficient jets.
In 2000, U.S. airlines burned 28.6 gallons of jet fuel per passenger. Last year, that improved to 22.5 gallons per passenger. “
Add on maintenance that keeps the planes safe and government fees and taxes (think TSA) and the bottom line is that there is very little wiggle room on the plane for profit.
Put it all together, and airlines — the well run ones — are only able to convert less than 1% of revenues into profits.
Probably not what Wilbur & Orville had in mind …
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