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Thu May 16, 2013
U.S. Airlines Forecast A Sunnier Summer
Originally published on Thu May 16, 2013 3:53 pm
After a long bumpy ride that started five years ago, the domestic airline industry seems to be pulling up and smoothing out.
The number of passengers planning to fly this summer will tick up 1 percent from 2012, climbing back to the highest level since 2008, an industry group said Thursday.
The airlines' profit outlook is also brighter, as jet fuel prices have settled down a bit. Passenger complaints are quieting down, too.
After years of losses, bankruptcies, mergers and misery, the industry finally "is heading in the right direction," said John Heimlich, chief economist for Airlines for America, which represents major carriers.
At a press briefing Thursday, Heimlich said airlines expect about 209 million passengers to fly between June 1 and Aug. 31. That's the highest level since the summer of 2008, when 210 million flew on U.S. carriers. The record was set before the Great Recession hit — at 217 million passengers — in the summer of 2007.
In March and April of this year, the airlines hit "a soft patch," Heimlich said. That was a period filled with bad weather and worse headlines, about flight delays tied to air-traffic-controller furloughs.
Dan Elwell, Airlines for America's vice president for operations, said that in April, 7,200 flights — involving 600,000 passengers — were delayed directly because of air-traffic-control disruptions caused by the congressional sequester of funds for the Federal Aviation Administration.
The sequestration-related delays cost the industry about $50 million in expenses tied to burning up extra fuel, re-booking passengers, rescheduling crews, etc.
After six days of flight disruptions, Congress and the FAA agreed to make some fixes so that the air-traffic delays would no longer be a threat, Elwell said.
As a result, the spring swoon is likely over. The association does not forecast earnings for the full year, but it says the industry is off to a better start than last year.
In 2013's first three months — always a tough quarter for airlines — 10 publicly traded airlines had a combined loss of $552 million. That was far better than a year ago, when they had a loss of $1.7 billion. For the first quarter, revenues were up 2.5 percent to $34.3 billion.
Heimlich said that this winter's improved performance has set the stage for profits later this year. Once the airlines get a little money in their coffers, they'll be able "to attract new investors, lower their costs of borrowing and reinvest" in new equipment and employees, he said.
U.S. airlines plan to upgrade airport terminals, customer lounges, kiosks, ground equipment and in-flight entertainment, the report said. They've already improved baggage handling with new equipment, better software and more worker training.
The good news for passengers is that fewer bags are being lost. Mishandled bag complaints are down to 3.15 per 1,000 domestic passengers, compared with 7.05 complaints in 2007.
But the improved service and brighter profit forecast have come at a price for passengers. Most airlines now charge extra for checked bags and some are even adding fees for carry-on bags. For example, earlier this month, Frontier Airlines announced it will charge up to $100 for one carry-on bag for any customer who fails to book directly through the carrier's website. That change takes effect this summer.
The added fees led Rick Seaney, who tracks airline fees as CEO of Farecompare.com, to ask in a recent post, "At this point, you may be thinking, have the airlines gone nuts?"
But airlines have lost so much money for so many years that, Seaney concludes, "They may be brazen, but they're not nuts. It has to do with survival."