The Homa Files

A short course in airline economics

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First. let’s establish that I’m no fan of of traveling … especially commercial air travel … via cattle-herding airlines.

That said, I scratch my head when folks characterize airlines as ruthless profiteers.

They may be ruthless but, I think, to be a profiteer a company has to make money, right?

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Below is a chart that’s a bit dated, but makes a directional point.

The graph shows cumulative net income of US air carriers since 1938.

What is says:

Since that fateful day when Orville & Wilbur took off, U.S.  airline companies have — as a group — LOST money.

There has been some recouping in the past decade — due mostly to consolidation  — but not enough to get the industry back above the birth-to-date Mendoza line.

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What’s going on?

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For openers, according to an analysis charted by AEI, “real” airfares – adjusted for inflation – dropped substantially when the industry was deregulated … and, fares have only started to bounce back over the past couple of years.

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All of those annoying ala carte fees (ticket changes, baggage, soft drinks) have, on average,  tacked on an additional $22 per round-trip —  about 5.5%.

And, costs have pretty much leveled off – save for the periodic fuel price jolts.

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The bottom line: Relatively flat costs … coupled with nudged-up pricing (from rock bottom levels) … have boosted airlines’ earnings … but, birth-to-date, the industry is still running in the red.

Those economics might explain why airlines are now charging for everything, adding ever-shrinking seats, and filling planes to the brim .

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This entry was posted on April 18, 2017 at 6:59 am and is filed under Airlines, Revenue management. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.