Airlines Are Making More Money — and You’re About to Be a Whole Lot Happier
The airlines are making money — but what does it mean for you? (Photo: Adam Fagen/Flickr)
The four largest U.S. airlines have just posted strong second quarter profits, but whether they will share the wealth with business travelers remains to be seen.
Industry experts say that although the gains will help carriers continue investing in state-of-the-art aircraft — a plus, particularly for travelers whose employers allow them to fly in the front of the cabin — carriers will continue to impose so-called ancillary fees. So you can continue to expect to be charged for the things that helped put them in the black: preboarding, seat assignments, and extra legroom. But it also might mean perks like in-seat power options and better in-flight entertainment systems.
It remains to be seen how much of the airline-industry profits will be passed on to travelers. (Photo: Getty Images)
In the second quarter of calendar year 2014, American posted its highest ever quarterly profit, $864 million, compared to a profit in the same period last year of $220 million. Delta’s profit rose 17 percent in the quarter to $801 million. Southwest’s record second-quarter net profit was $465 million, compared with $224 million in the same quarter in 2013. And United’s profit of $789 million was 68 percent higher than the $469 million posted in the same period last year. These four carriers generate 90 percent of the U.S. airline industry’s profit.
According to Michael Derchin, airline analyst for CRT Capital Research, carriers’ strong profits are the result of several factors, including cheap jet fuel, which he said cost less in the second quarter than it had since 2010; jet fuel is the industry’s largest cost element, making up approximately 55 percent of direct operating costs.
Higher airfares — Derchin said fares climbed four to five percent in the quarter, year over year — also contributed to profitability, as did income from ancillary fees. He said these fees, which totaled only $2 billion for the industry in 2006, had climbed to $7 billion last year, all “going to the bottom line.”
Although Derchin said airlines will plow their profits into new aircraft, this will not necessarily be a boon to business travelers. He estimates that although U.S. carriers have 850 new aircraft currently on order for delivery through 2019, the vast majority will be used to replace older planes airlines will retire. He expects only 150 new planes will be added to the industry’s total fleet. “Load factors will stay very high” — which means planes will stay crowded — “fares will go up and fees will go up. The airlines will do it because they can do it,” he said.