The US Airline Industry Earned $25.6 Billion Last Year
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The U.S. Department of Transportation announced that airlines earned huge profits in 2015. Data released by the DOT’s Bureau of Transportation Statistics showed that, together, America’s 25 commercial airlines took in $25.6 billion in after-tax profits. That is a massive increase compared to 2014, when the airlines earned a combined $7.5 billion.
The third quarter of 2015 was, by far, the best three months of the year (and the best quarter in recent memory). From July through September, the industry’s earnings topped $9 billion. Q4’s profits came in at a still-impressive $7.7 billion.
Sixth straight year of profits
Perhaps the most surprising part of the DOT’s latest release was that the 25 carriers have actually posted a combined profit for each of the past six years. Granted, lean years like 2012 saw a combined profit of $98 million, which could hardly be considered successful when spread among more than two dozen airlines.
Despite a few speed bumps - such as the bankruptcy of Republic Airways - the industry in the United States is the healthiest that it has been in at least a decade.
Will the hot streak continue?
Fuel prices were 35 percent lower, on average, last year than in previous years. This had a lot to do with helping airlines reach the stratospheric $25 billion profit mark. According to some analysts, the price of crude has already bottomed out, so the 25 airlines probably won’t get as much help from the oil markets going forward. Many have hedging strategies that will keep their costs relatively low for the next two years, but fuel will not stay dirt cheap forever.
Despite recent fare hikes, average ticket prices are at their lowest in more than five years. There is more demand, so more people are purchasing tickets. Non-ticket revenue streams also played a huge role in profits. Industry-wide, profits from baggage fees approached $4 billion and fees related to reservation changes earned the 25 another $3 billion. Actually, the profits from these ancillaries could be much higher. Airlines are not required to report profits from other fees to the DOT.
Speed bumps ahead
Competition could slow down profits. Airlines are lowering fares as they try to compete with each other on the busiest routes. This kind of fare competition has some investors and analysts worried about future profits, but it is a positive trend, obviously, as far as fliers are concerned.
Trade association Airlines for America, was quick to point out that the rise in profits has coincided with a drop in fares. A spokesperson for the group told the media that “the industry is working as well as it ever has before – to the benefit of the 2.2. million passengers who fly on U.S. airlines every day.”
Not everyone shares that opinion. The director of group Travelers’ Voice, Trey Bohn, pointed to the almost $7 billion in reported revenue from baggage and change fees as a sign that airlines aren’t interested in passengers. “Depending too much on revenue from these operating fees is not only an operating weakness, it also suggests to travelers that the nickel and the dime are more important than improving their product.”
The DOT did receive a record number of complaints last year from fliers, so there is also data to back up Bohn’s position.
The American commercial air travel industry should continue to be profitable, but competition, fuel prices and, perhaps, unhappy passengers, could make it very difficult for the 25 airlines to repeat the $25 billion feat in coming years.
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