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Attention passengers: Your air carrier would like to thank you for paying more for your ticket -- and sitting in a middle seat -- this summer, according to this report by Tom Belden published by the Philadelphia Inquirer.
Despite a huge rise in fuel prices, airlines made more money in the second quarter than any time since 2000. Strong demand for travel allowed them to raise fares as they cut the number of flights and available seats. Also helping were sharp reductions in labor costs and in debt for airlines that are or were under Chapter 11 bankruptcy protection.
Yesterday, US Airways became the latest carrier to report a second-quarter profit, a feat even United Airlines says it will achieve just five months after it emerged from more than three years in Chapter 11.
US Airways Group Inc., which made $305 million in the three months ended June 30, joined AirTran ($32 million), American ($291 million), Continental ($198 million), Southwest ($333 million) and others in reporting quarterly profit. United is scheduled to report its earnings Monday.
W. Douglas Parker, US Airways chairman and chief executive officer, said in announcing its earnings that while other carriers were making money, "no other airline has experienced an improvement as dramatic as US Airways'."
US Airways is Philadelphia's dominant carrier, with more than 60 percent of the flights and passengers and more than 5,000 employees based here.
US Airways executives said they expected to make money in the third quarter, which typically is the industry's best because of heavy summer travel, and for the full year. A full year in the black would be US Airways' first since 1999.
The carrier recorded second-quarter net income of $3.25 a share on revenue of $3.19 billion. Because US Airways emerged from bankruptcy in September after a merger with America West Airlines, its financials are not directly comparable with the previous year's results for the two predecessor airlines.
Increasing airfares has been the airlines' ticket to profitability.
This week, the older hub-and-spoke airlines raised their one-way fares an additional $5, the seventh time this year they have increased prices. Low-cost carriers, including AirTran and Southwest, have also pushed up fares in several steps, usually by a little less than the older airlines.
The U.S. Bureau of Transportation Statistics said this week that its air-travel price index, which measures changes in ticket prices on identical routings each quarter, rose 10.3 percent in the first three months of the year, the largest increase since the start of the index in 1995.
Analysts estimate that airlines this year will take in 11 percent more in revenue per passenger mile flown than a year ago, while filling more than 80 percent of their available seats. Historically, planes have taken off with 70 percent to 75 percent of the seats occupied.
US Airways Group's revenue per passenger mile increased even more than the industry average, at 29 percent on the US Airways portion of its route system, and 19 percent on the America West portion. The two parts of the airline are still largely separate, awaiting new labor agreements on how the workforces will be merged.
Roger King, an airline analyst with CreditSights in Norwalk, Conn., predicted earlier this year that airlines would continue raising fares and squeezing more people onto each flight "until passengers cry uncle and call Greyhound."
But that point has not been reached, King said this week. "At some point, at a certain price, people are going to stop flying," he said. "What that price is is to be determined."
US Airways' profit, which slightly beat analysts' estimates, did not lift investors' spirits. Shares of the airline, based in Tempe, Ariz., fell $3.14 yesterday, or 6 percent, to close at $47.99.
The industry's profits in the quarter come despite oil prices that are more than a third higher than they were a year ago. Jet fuel now is the largest expense category for US Airways and some other carriers, in large part because of deep pay cuts, the elimination of pension costs, and staff reductions at airlines reorganizing in Bankruptcy Court.
Much of the industry's ability to cope with the higher fuel bills is due to cutbacks in the number of available flights and airplane seats by airlines that have been through bankruptcy, analysts and airline executives said.
"It's not great management," Parker said in a conference call with analysts, referring to the whole industry. "As seats have gone away, you've seen fares go up."
Analysts and other industry observers said that it was too early to know if business travelers, who have also seen their hotel and car-rental costs rise this year, would cut back on travel in the fall because of the higher fares.
Kevin P. Mitchell, chairman of the Radnor-based Business Travel Coalition, said it was heartening to see that low-cost airlines had expanded so much since 2000 that competition was setting ticket prices on most routes. In the late 1990s, the older carriers had more pricing power, in part because they kept newer airlines at bay on many of their most lucrative monopoly routes, he said.
"Low-cost carriers are offering very broad market discipline," Mitchell said. "True supply and demand is setting prices, not anticompetitive behavior."
For leisure travelers, resistance to higher airfares is likely to depend on other economic factors, including whether spending on new automobiles and other consumer durables slows down, and whether interest rates continue to rise.
"If that happens, that's going to be a signal consumers are running out of borrowing capacity," said airline consultant John V. Pincavage of Pincavage & Associates in Westport, Conn. "And if that happens, what's the easiest thing to curtail? A trip."
(The preceding report by Tom Belden was published by the Philadelphia Inquirer on Friday, July 28, 2006.)
July 28, 2006
Attention passengers: Your air carrier would like to thank you for paying more for your ticket -- and sitting in a middle seat -- this summer, according to this report by Tom Belden published by the Philadelphia Inquirer.
Despite a huge rise in fuel prices, airlines made more money in the second quarter than any time since 2000. Strong demand for travel allowed them to raise fares as they cut the number of flights and available seats. Also helping were sharp reductions in labor costs and in debt for airlines that are or were under Chapter 11 bankruptcy protection.
Yesterday, US Airways became the latest carrier to report a second-quarter profit, a feat even United Airlines says it will achieve just five months after it emerged from more than three years in Chapter 11.
US Airways Group Inc., which made $305 million in the three months ended June 30, joined AirTran ($32 million), American ($291 million), Continental ($198 million), Southwest ($333 million) and others in reporting quarterly profit. United is scheduled to report its earnings Monday.
W. Douglas Parker, US Airways chairman and chief executive officer, said in announcing its earnings that while other carriers were making money, "no other airline has experienced an improvement as dramatic as US Airways'."
US Airways is Philadelphia's dominant carrier, with more than 60 percent of the flights and passengers and more than 5,000 employees based here.
US Airways executives said they expected to make money in the third quarter, which typically is the industry's best because of heavy summer travel, and for the full year. A full year in the black would be US Airways' first since 1999.
The carrier recorded second-quarter net income of $3.25 a share on revenue of $3.19 billion. Because US Airways emerged from bankruptcy in September after a merger with America West Airlines, its financials are not directly comparable with the previous year's results for the two predecessor airlines.
Increasing airfares has been the airlines' ticket to profitability.
This week, the older hub-and-spoke airlines raised their one-way fares an additional $5, the seventh time this year they have increased prices. Low-cost carriers, including AirTran and Southwest, have also pushed up fares in several steps, usually by a little less than the older airlines.
The U.S. Bureau of Transportation Statistics said this week that its air-travel price index, which measures changes in ticket prices on identical routings each quarter, rose 10.3 percent in the first three months of the year, the largest increase since the start of the index in 1995.
Analysts estimate that airlines this year will take in 11 percent more in revenue per passenger mile flown than a year ago, while filling more than 80 percent of their available seats. Historically, planes have taken off with 70 percent to 75 percent of the seats occupied.
US Airways Group's revenue per passenger mile increased even more than the industry average, at 29 percent on the US Airways portion of its route system, and 19 percent on the America West portion. The two parts of the airline are still largely separate, awaiting new labor agreements on how the workforces will be merged.
Roger King, an airline analyst with CreditSights in Norwalk, Conn., predicted earlier this year that airlines would continue raising fares and squeezing more people onto each flight "until passengers cry uncle and call Greyhound."
But that point has not been reached, King said this week. "At some point, at a certain price, people are going to stop flying," he said. "What that price is is to be determined."
US Airways' profit, which slightly beat analysts' estimates, did not lift investors' spirits. Shares of the airline, based in Tempe, Ariz., fell $3.14 yesterday, or 6 percent, to close at $47.99.
The industry's profits in the quarter come despite oil prices that are more than a third higher than they were a year ago. Jet fuel now is the largest expense category for US Airways and some other carriers, in large part because of deep pay cuts, the elimination of pension costs, and staff reductions at airlines reorganizing in Bankruptcy Court.
Much of the industry's ability to cope with the higher fuel bills is due to cutbacks in the number of available flights and airplane seats by airlines that have been through bankruptcy, analysts and airline executives said.
"It's not great management," Parker said in a conference call with analysts, referring to the whole industry. "As seats have gone away, you've seen fares go up."
Analysts and other industry observers said that it was too early to know if business travelers, who have also seen their hotel and car-rental costs rise this year, would cut back on travel in the fall because of the higher fares.
Kevin P. Mitchell, chairman of the Radnor-based Business Travel Coalition, said it was heartening to see that low-cost airlines had expanded so much since 2000 that competition was setting ticket prices on most routes. In the late 1990s, the older carriers had more pricing power, in part because they kept newer airlines at bay on many of their most lucrative monopoly routes, he said.
"Low-cost carriers are offering very broad market discipline," Mitchell said. "True supply and demand is setting prices, not anticompetitive behavior."
For leisure travelers, resistance to higher airfares is likely to depend on other economic factors, including whether spending on new automobiles and other consumer durables slows down, and whether interest rates continue to rise.
"If that happens, that's going to be a signal consumers are running out of borrowing capacity," said airline consultant John V. Pincavage of Pincavage & Associates in Westport, Conn. "And if that happens, what's the easiest thing to curtail? A trip."
(The preceding report by Tom Belden was published by the Philadelphia Inquirer on Friday, July 28, 2006.)
July 28, 2006
