Airlines can breathe again – bottom of their recession may be in sight

by Scott Carmichael on

There is no doubt that 2009 is a year that most airlines will want to put behind them as fast as they can.

In essence, it was the perfect storm combining everything that airlines hate.

A report published back in May told the doom and gloom story about airline profits – and that not a single airline in the world would earn anything this year.

As the first very small signs of economic recovery begin to show, airlines are starting to be a tad more optimistic, and are even projecting a growth in passenger traffic for 2010. In 2009, traffic was down 2%, but 2010 could bring a 4.9% rise, which is obviously just what the airlines need to stay alive.

Total losses between all the world’s airlines is $9 billion, which really doesn’t seem like that much in this new economy. Still, it’ll be at least 6 months till the airlines will know whether the worst really is over, especially as the busy summer travel months come to an end and passenger numbers drop. The real indicators will be business travel and freight – neither of which have recovered yet.

Once everything returns back to normal, we’ll emerge battered and bruised with lower airfares, higher (and newer) fees, a couple less airlines and some airlines that have removed premium seats. None of the major carriers vanished, but most of them did cut their workforce substantially.

Airline cancellation fees worse than baggage fees

by Tom Johansmeyer on

Airlines rely on you to have minor and major personal crises. Everything from changed meeting dates to family emergencies generate around $2 billion in change and cancellation fees a year, according to the Department of Transportation. That’s pretty much twice the amount the airlines pull in from extra bag fees – a measure that’s already been lauded by the Wall Street set for its impact on the airlines’ finances. For American Airlines parent AMR, for example, change and cancellation penalties came to $116 million for the first quarter of the year, while baggage fees amounted to $108 million.

These penalties, lamented almost universally by passengers, upped airline passenger revenue by 3.2 percent in the United States. As usual, business travelers get screwed most (probably because they travel most. They paid the bulk of $527.6 million in first quarter change fees.

Even with fewer people climbing onto planes this year, increases in penalty amounts have led to a net gain in revenue for airlines from this type of fee. A number of the larger airlines upped their change fees from $100 to $150. JetBlue moved it from $40 to $100 – and saw first quarter fees surge 29 percent, from $25 million to $32.2 million, relative to the first quarter of 2008.

These change fees are actually pretty important. With the money they bring in, airlines can offer discounts elsewhere, financed by the extra income. And, they make it more attractive for passengers to buy full-fare tickets, that way they have a bit more flexibility. The more expensive tickets benefit the passenger … and of course, the airline.

Airlines run out of services to cut, eye flights

by Tom Johansmeyer on

Cuts aren’t limited to airline employees and passenger amenities. In the next few months, capacity – the number of asses that can be accommodated – will be sliced. Having fewer flights will lower costs and boost the all-important revenue per available seat-mile (RASM) metric. For passengers, the drop in supply is likely to push fares higher and convenience lower (if you’re looking for non-stop flights, you’ll have to look harder).

It’s earnings season – and what happens down on Wall Street will ripple through every airport in the country. Six of the nine top airlines in the United States posted profits for the year – fun! – but they did it on falling sales. What’s that mean for the average traveler? It means airlines have had to cut their way to profits, because they aren’t growing. If passengers aren’t spending as much, all the airlines can do is take away services that cost money. And, with RASM down 19 percent year-over-year for seven U.S. airlines, they have little choice.

If you’ve been on a flight recently, you’ve seen there isn’t much left to cut, which is why airlines are going to be cutting the flights themselves. For the fourth quarter of 2009, total available seat-miles (one person flying one mile on one flight) is expected to fall to 12.4 billion – which is close to post-9/11 levels. Two years earlier (Q4 2007), it was 14.2 billion.

I hope you believe that “getting there is half the fun.” If you do, the decline in non-stop flights won’t bother you as much. Prepare for layovers – lots of ’em. This will help airlines consolidate flights, fill vacancies and boost RASM. But, it also means that you’ll spend a bit more cash at Auntie Anne’s (get some cheese with those pretzels!).

Cutting costs could actually lead to higher prices, which the airlines desperately need – but it means a smaller base of seat-miles on which to make money. Competition will fall on some routes, and overall supply drops – both of which give airlines the power to increase fares. Of course, these really are minor forces compared to broader economic conditions. The ability of customers to pay is ultimately what drives the cost of a ticket, and absent an economic recovery, fares will stay low, as will airline earnings.

On-time airline improvements continue, third month in a row

by Tom Johansmeyer on

Airlines in the United States posted an improved on-time performance rate in April relative to the same month the year prior – stretching their streak to three. The 19 largest airlines were on time 79.1 percent of the time in April 2009, compared to 77.7 percent in April 2008. The industry also performed better than it did in March 2009, showing a month-to-month improvement from 78.4 percent. An on-time arrival is defined as being within 15 minutes of the scheduled time … which has already been buffered comfortably by the airlines.

According to the U.S. Department of Transportation, 7.4 percent of April delays resulted from aviation system issues. Late-arriving aircraft caused 6.2 percent, and factors within the airline’s control (e.g., maintenance or crew problems) accounted for 4.8 percent. Extreme weather and security together didn’t even account for 1 percent of delays. The most delayed flight was Northwest Airlines Flight 803 from Atlanta to Honolulu. It was late 97 percent of the time.

The DOT also found that:

  • Cancellation rates improved to 1.5 percent in April 2009 – from 1.7 percent in April 2008 and 2.1 percent in 2009.
  • Nearly 50 flights had taxi-time waits of greater than three hours
  • Mishandled baggage rates improved to 3.79 per 1,000 from 4.99 in April 2008 and 4.12 in March 2009

Customers complained to the DOT 781 times about airline service, compared to 1,112 in April 2008. But, it was up from the 705 the previous month.

So, the airlines are generally posting some positive numbers – Fight 803 notwithstanding. Why? Are we looking at a vast improvement across an entire industry … an industry that clearly can’t afford to invest in doing a better job?

Let’s not go crazy, here.

The airlines are doing a better job because they don’t have to deal with as many people. Fewer asses are occupying seats, which eases the burden of boarding passengers, pushing back on time and keeping track of their luggage. Ironically, success is the path to failure, as selling more seats would give airlines an operational burden they’ve proved they’re ill-equipped to handle.

Pay to pee on Ryanair no joke

by Tom Johansmeyer on

Remember when we called Ryanair’s plans to charge for lavatory access a stunt? Yeah, we do, too. Those were simpler days, I guess. It turns out, that stunt concealed an even larger one. CEO Michael O’Leary announced that the airline will begin charging one pound (around $1.65) for access to the special rooms at the front and back of the plane.

I actually see some restraint on the press-whorish CEO’s part. I expected him to break the fee down by bodily function, charging a premium for what results in a bit more time. After all, time is money, and one person’s long stay could cost a few extra bucks because other passengers may not get their turns.

But, the savvy airline leader is hedging his bets … as he did with the fat tax, which is now off the table (O’Leary calls it “impractical”). No start date has been revealed; only a two-year time horizon was given. But, he does say, “We are serious about it.”

There’s only one way to make this better, and O’Leary’s found it. Instead of charging for the existing abundance, he’s planning to tear a few out of each plan, in order to make room for more seats. This works in two ways. First, there are more people on the plane who become potential piss-payers. Also, there are fewer lavs, creating a scarcity of resources.