A4A: Airlines Edge Closer to Average Corporate Profitability

 - August 17, 2016, 3:49 PM

Major U.S. airlines collectively reported pre-tax profit of $12 billion in the first half of the year, improving from $11.3 billion during the same period in 2015. This translated to an average profit margin of 15.5 percent, or 15.5 cents on every dollar of revenue, trade organization Airlines for America (A4A) said on August 17.

A 1.9-percent reduction in operating expenses to $64 billion during the half drove the year-over-year improvement in profitability. Significantly lower fuel costs (down 26.3 percent) offset higher labor, aircraft and other expenses, the organization said. A4A analyzes financial results of 10 publicly traded carriers: Alaska, Allegiant, American, Delta, Hawaiian, JetBlue, Southwest, Spirit, United and Virgin America.

Since the recession of 2008-2009, major carriers have edged closer to average U.S. corporate profitability. Airlines achieved average profit of 14.1 percent last year versus 16.5 percent for all U.S. corporations—the narrowest gap on record, A4A said.

“For the first time since the Great Recession, airlines are finally achieving profit margins on par with the average U.S. corporation,” said A4A chief economist John Heimlich. “Customers, employees and investors are benefiting every day from a financially healthy airline industry that is able to invest in the products, technologies and amenities the traveling public values.”

During the first half of the year, the 10 carriers reinvested $9 billion “to enhance the customer experience,” primarily through the acquisition of new aircraft, A4A said. Carriers will take delivery of 366 new aircraft over the course of the year.

Regional jets with 50 seats or less accommodated 45 percent of domestic departures in 2004; this year “they are merely a fourth of all domestic departures experienced by customers,” Heimlich said during a conference call with reporters. “At the same time, the presence of larger regional jets in the 51- to 100-seat category has tripled from 7 percent of the system to 21 percent of the system.”

During the conference call, A4A senior vice president for communications Jean Medina commented in general terms when asked what airlines are doing to protect their computer systems in light of recent system outages that led Southwest and Delta to cancel or delay hundreds of flights.

“We would note that [as a] 24/7 global business, airlines are naturally incentivized to invest in their infrastructure and their IT systems to ensure that their operations are as smooth as possible,” she said. “The first half of the year showed that we had a nearly 99-percent completion factor of all scheduled flights. Clearly, while there have been some anomalies, the system continues to be very highly reliable and the money airlines are investing both in planes and technology is addressing that. Airlines take any disruption to their operations very seriously and they work to get their systems back up and running as quickly as possible, and they are making those investments.”

A4A also announced the launch of an interactive data dashboard to provide travelers with information on current flight operations at the top 30 airports in the U.S., including on-time performance and cancelled flights, as well as general weather information. A4A produced the dashboard in partnership with Global Eagle Entertainment.