NYT: Airlines Reap Record Profits, and Passengers Get Peanuts

Discussion in 'General Discussion | Travel' started by NYCUA1K, Feb 7, 2016.  |  Print Topic

  1. NYCUA1K

    NYCUA1K Gold Member

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    "Helped by falling oil prices, airlines are reporting record profits, but for many passengers this sudden bonanza has meant little more than extra bags of free peanuts and pretzels.

    The four biggest domestic carriers — American Airlines, Southwest Airlines, Delta Air Lines and United Airlines — together earned about $22 billion in profits last year, a stunning turnaround after a decade of losses, bankruptcies and cutbacks. A big reason for this is the plunging price of jet fuel, which now costs only a third of what it did just two years ago.

    But that windfall is only slowly finding its way down the aisles. Days after reporting record profits, for instance, two of the nation’s biggest airlines brought back free snacks in coach.

    United said it would begin serving complimentary stroopwafels, which it described as “Dutch-made toasted waffle treats,” and American said it would offer free meals in economy class on flights between Dallas and Hawaii, and free snacks on all domestic flights.

    Airfares, however, have remained stubbornly high."

    Continue reading...

    What I found fascinating in the piece is the following chart, which shows AA and UA posting much higher net incomes for 2015 than DL, with Southwest just a minor player. Shouldn't DL have been at the top and UA at the bottom, considering the narrative about the relative day-to-day performances of the two carriers?

    upload_2016-2-7_3-29-16.png

    It looks like DL had dominated in net income in 2013 and that may have driven the subsequent narrative, which still lingered even after the picture had changed. Then again, a high net income may not necessarily translate into a higher profit...
     
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  2. anileze

    anileze Gold Member

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    I think one would have to go through in depth what DL took as charges against prior commitments. Buying oil refineries ? :(
     
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  3. 365RoadWarrior

    365RoadWarrior Silver Member

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    Sure, with hindsight and now-perfect knowledge of the direction of oil prices, it looks like a mistake. But virtually all airlines hedge their fuel prices. You can do it using contracts (that involve counterparty credit risk, using derivatives and synthetic instruments, or you can do it with real assets, in this case, vertical integration.

    As for the "record profits", i believe that airlines are not public utilities and they, over the long run, they should be allowed at least a breakeven existence. After decades of losses, current profitability doesn't offend me. In fact, I take some solace that it may reduce the need to defer maintenance on planes.
     
  4. NYCUA1K

    NYCUA1K Gold Member

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    I believe that what the chart shows are the profits, which the piece uses interchangeably with net income. It says that the carriers "together earned about $22 billion in profits last year", which is the sum of the net incomes shown in the chart ($7.6B + $4.5B + $2.2B + $7.3B = $21.6 = ~$22B). Therefore, that net incomes = profits suggests that everything (cash out flow, inflow, pending, tied up) seems to have been accounted for in those numbers...
     
    Last edited: Feb 8, 2016
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  5. tombrady1212

    tombrady1212 Active Member

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    ok, but to be fair, it's not like airlines make profit every year. In fact, if you add up all earnings over their lifetime, many have lost more money than they've made - most of those guys have been acquired or gone bankrupt. It's a tough business.
     
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  6. satman40

    satman40 Gold Member

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    If you have a business, you have flexible expenses, fixed expenses, and long term expenses.

    The long term expenses need to be paid down with any excess.

    I have never seen an airline passenger leave money on the ticket counter, just because the flight was going out less than full.
     
  7. tombrady12

    tombrady12 New Member

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    It's kind of an unfair theme. The airline industry as a whole, is one of the most unprofitable. Some years they lose tons of money, other years they earn. On average, their returns are not very good. You can't just cherry pick the good years and leave them with the bad.
     

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