Airlines cruise to profits as fuel costs drop
Major U.S. airlines are expected to report strong earnings for the fourth quarter and full-year of 2015. Delta, American, United, Alaska and Southwest — the survivors left standing after more than a decade of terrorism scares, economic turbulence, bankruptcies and mega-mergers — have been benefiting from industry consolidation, said industry equity analyst Jim Corridore at S&P Capital IQ.
“There is a lot less competition now than there ever has been in this sector,” said Corridore. “So they’re looking to cut routes that are not profitable, grow in areas where they have key strengths.”
Corridore said airlines have also returned some of their new profits to employees in the form of higher pay.
Plummeting crude oil prices have helped boost airline profits in the past year—jet fuel is one of airlines’ biggest operating costs.
“They are rewarding shareholders, buying back stock, paying dividends,” said Corridore, “cutting debt and maintaining high cash balances.”
But Corridore said the flying public benefits from stronger balance sheets across the industry, too. “Airlines are investing in their product, modernizing fleets to get more fuel efficiency,” said Corridore. “They’re updating airport facilities.”
Seth Kaplan, publisher of Airline Weekly, said the major airlines are also investing their profits in new technology—to track bags better and board planes more efficiently.
“Punctuality and not losing bags — by those measures a lot of these airlines are actually doing very well,” said Kaplan.
The Department of Transportation recently reported that airlines delivered the third-best on-time-arrival performance in more than 20 years, with 87 percent of flights on-time in October, compared with 80 percent one year earlier. Cancellations of domestic flights fell to the second-lowest level in 20 years. Reports of mishandled bags (including lost bags) fell 14 percent year-over-year.
But many members of the flying public don’t feel like service is improving on the ground or in the air.
Hazel Schlesinger is an artist and former public-school administrator from suburban Portland, Oregon, who will soon be boarding a plane for a winter vacation.
“The experience is worse than it used to be,” said Schlesinger. “Less inches-per-seat, being dinged every time you bring an item onboard. A lot of customer service has gone by the wayside.”
Consumer psychologist Kit Yarrow at Golden Gate University thinks many leisure and business travelers feel this way because of the increased hassle and anxiety associated with air travel since 9/11, along with the wave of industry consolidation and fee-based revenue-raising that followed. Those consumer irritants include tight airport security and long TSA lines, crowded boarding areas and airplanes, escalating reservation-change and checked-baggage fees, and the difficulty of lugging around heavy carry-ons to avoid paying those fees.
"But, I still fly," said Hazel Schlesinger. "I love where I get to.”