Us airlines’ 1q profits down 27% as expenses outpace revenues airlines content from atwonline gas monkey monster truck body

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Pre-tax earnings for US airlines fell 27%—down approximately $700 million year-over-year—in the first quarter of 2018, as fuel, labor, airport and aircraft expenses outpaced revenues, according to an industry overview by Airlines for America (A4A) released May 23.

A4A represents six publicly traded US passenger carriers (Alaska Airlines, American Airlines, Hawaiian Airlines, JetBlue Airways, Southwest Airlines and United Airlines). The results presented in A4A’s overview also include non-members Allegiant Air, Delta Air Lines and Spirit Airlines. Those nine airlines earned $1.9 billion in combined pre-tax income for the 2018 first quarter, compared to $2.6 billion in the 2017 first quarter. (A4A also represents cargo carriers Atlas Air Worldwide, FedEx Express and UPS Airlines, but those companies’ results are not included in the passenger airline financial overview.)

“We don’t see this letting up any time soon given the rapid ascent of fuel prices, [and with] crude oil prices rising swiftly at their highest level in three-and-a-half years,” A4A chief economist John Heimlich said. “Brent crude prices in May were averaging about 50% more than May 2017 and have risen recently to about 60% more year-over-year (YOY), a situation that could persist at least through the summer.”

“The challenge is that operating expenses have been rising faster than operating revenues, [with] a 9.9% increase in operating expenses led by a 23.3% increase in fuel, [and a] 6.8% increase in labor,” Heimlich said. “Combined, that resulted in a reduction in [YOY] profits to just under a nickel for every dollar of revenue collected, a 4.9% margin.” Operating revenues increased 7% YOY during the quarter.

The combined pre-tax 4.9% profit margin placed the US airline industry well below the US corporate average of 15-16%, Heimlich said. In A4A’s ranking, based on SEC filings, the combined nine US airlines’ 4.9% profit margin for the quarter was about half of Marriott’s (10%) and one sixth of the US rail sector (30.1%), but ahead of Ford Motor Co. (4.6%).

Looking to the summer ahead, A4A forecasts a 3.7% YOY increase to 246 million total passengers flying on US airlines between June 1 and August 31, about 2.7 million passengers per day, up 96,000 passengers per day compared to summer 2017. US airlines are planning to add 116,000 additional seats per day to meet demand, which A4A said is driven by expanding LCCs, low-fare options on full-service carriers and city-pair competition, combined with rising GDP, employment, and disposable income in the US.

“The bottom line is that it’s a lot cheaper to fly now and there are many more options because of how competitive the airline industry is,” A4A SVP legislative and regulatory policy Sharon Pinkerton said, noting pre-deregulation average domestic round trip fares were between $600-700 including fees, compared to $363, including ancillaries, for an average domestic round trip flight in 2018.

“Flying is also a lot more accessible today. Let’s face it, people like to talk about the 70s as being the golden age of flying. The fact of the matter is, it was golden only for the 1% because they were the only ones that could afford to fly,” Pinkerton said. “Deregulations have democratized air travel; they’ve made it more affordable and accessible for people of all economic means. So our policy message to the policy makers in Washington [DC] as we close in on Senate consideration of the FAA bill, is to heed the successes of deregulation and avoid making the mistake of putting the government back in charge of setting prices.”