Operating Costs Outpace Airline Income in First Half

 - September 3, 2012, 8:15 PM
U.S. airlines have improved operational performance on several fronts, even as operating costs have exceeded income, according to A4A. (Photo : Bill Carey)

Despite $1 billion in losses during the first half of this year stemming from fuel and other cost increases, major U.S. airlines have improved operational performance on several fronts, according to the trade group Airlines for America (A4A).

An A4A analysis of reports by Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and US Airways reveals a net loss of $1.07 billion and negative profit margin of 1.5 percent in the first half of the year. Despite 8.2 percent stronger operating revenues, airlines faced 9.4 percent higher costs from the combination of fuel, wages and benefits and other expenses. The year-to-date price of jet fuel–$3.05 per gallon–runs higher than last year’s record of $3.

Existing and proposed government regulations rank among the top challenges the industry faces. A4A estimates that current full-fare advertising and other consumer mandates, new pilot flight- and duty-time requirements and proposed requirements for fuel tank inerting and airport hydrant fueling systems will cost the industry $3.3 billion annually. The estimate does not include the potential cost of new requirements controlling the carriage of lithium batteries.

Even with the rising costs, the industry in recent years returned to modest profitability through the diversification of revenues and “improved alignment of revenues generated with costs incurred,” A4A said on August 29 with the release of its midyear economic review and forecast. Counting ancillary revenue from various products and services, the industry’s revenues-per-enplaned passenger in 2011 averaged $213.14, exceeding its costs of $212.37. “Airlines continue to aggressively manage against steep cost increases, including fuel prices, which are expected to hit a record high in 2012 and continue to outpace increasing revenues,” said John Heimlich, A4A chief economist.

In June, U.S. airlines improved on-time performance for the ninth consecutive month and continue to log on-time arrival rates greater than 80 percent “thanks to systemic airline changes and mild weather,” A4A said. Airlines also posted their best-ever June baggage-handling results, delivering suitcases and packages properly to 99.67 percent of passengers. During the first half of the year, 83.7 percent of domestic flights arrived within 15 minutes of schedule and airlines mishandled 2.97 bags per 1,000 domestic passengers. These and performance indicators for involuntary denied boardings and flight cancellations all improved over 2007 figures.

A4A said U.S. passenger airlines received 1.18 complaints per 100,000 customers in 2011, lower than other modes of transportation serving far fewer people. Average round-trip domestic air fares, adjusted for inflation, declined 16 percent from 2000 through 2011. “From a consumer perspective, it’s a great time to travel by air,” said Nicholas Calio, A4A president and CEO.