A4A: U.S. Airlines Manage ‘Paper Thin’ Profits

 - August 26, 2013, 11:50 AM
Ten U.S. passenger airlines, Delta among them, collectively reported a net profit of $1.6 billion during the first half of this year, according to Airlines for America. (Photo: Bill Carey)

The financial performance of U.S. airlines improved from “razor thin margins to paper thin margins” during the first half of the year, as passenger airlines collected 2.1 cents in profit for every dollar of revenue, according to trade organization Airlines for America (A4A). In a quarterly media briefing on August 22, A4A said airlines benefited from a small decrease in fuel prices, their largest cost.

The 10 publicly traded airlines A4A tracked–Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and US Airways–collectively reported a net profit of $1.6 billion, improving from $1.2 billion during the same period last year. Operating revenues increased by 1.7 percent, to $72.8 billion.

At an average price of $3.17 per gallon with taxes, jet fuel cost declined by 5 percent from an all-time high last year. “That was absolutely the most critical factor driving the year-over-year gain,” said A4A chief economist John Heimlich. He said the average jet fuel price has risen 26 cents per gallon since the end of June, an increase that would have negated first-half profits.

“It now costs me, as an airline, more than double just for the fuel to transport one passenger one mile, juxtaposed against my intake from the passenger per mile,” Heimlich said. “Whereas fuel expense alone used to gobble up 15 percent of whatever I got from a customer, in 2012 it gobbled up 38 percent.” Cost pressures have driven airlines to increase their “break-even” passenger load factor to 81 percent in 2012 (from 78 percent in 2007) “to avoid losing money,” he said.

Nancy Young, A4A vice president of environmental affairs, framed the airline industry’s objectives for September’s International Civil Aviation Organization (ICAO) general assembly in Montreal, where delegates expect to consider alternatives to the European Union’s controversial emissions trading scheme. Last November, the EU suspended application of the scheme for international flights in and out of Europe pending action by ICAO, a United Nations entity, to produce a global aviation plan for reducing emissions.

Young said airlines want the 191 ICAO member states to reconfirm emissions goals set at the previous general assembly in 2010, which align with the industry’s goal of achieving “carbon neutral” growth by 2020 through more efficient engines and “sustainable” alternative fuels, ATC modernization and more efficient flight operations. The industry would support “a single market-based measure that can fill the gap,” such as a carbon credit exchange, if it falls short of reaching its carbon-neutral goal.

“What we would like to see [at the ICAO assembly] is a commitment to establish a global offsetting mechanism to be agreed at the next assembly [in 2016],” she said. “Work could be done to implement it so it’s in place by 2020 to support our target of carbon-neutral growth from 2020.” Young said an example of an offsetting mechanism would be to allow industries that have reduced emissions beyond requirements to sell credits to other industries. “We want to minimize how much we have to buy from any other sector, but an offsetting regime would allow us to bridge the gap if needed,” she said.