How much airlines really earn per flyer

Airlines don’t end up with as much money from your airfare as you’d think. Picture: Thinkstock

THE airline industry likes to think it is having a renaissance, finally able to show consistent profits and return on investment just like any other industry and to avoid the regular warnings that “airline investing may be ha ardous to your health”.

The latest statistics from Airlines for America (A4A), the leading airline trade group, show the industry is not quite where it wants to be. In a year-end report, the 10 US airlines that have reported full-year results for 2012 made a combined profit of $US152 ($149) million on revenue of $143.4 ($143) billion. That works out to a profit margin around 0.1 per cent. For each passenger they carried, US airlines made a scant 21 cents.

And Australian airline won’t have fared much better, with Virgin Australia this week reporting a profit drop of 56 per cent.

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Compared to leading US companies, airline industry results were abysmal, A4A said. For instance, in 2012 Ford made $5.7 ($5.6) billion and had a profit margin of 4.2 per cent, Starbucks made $1.4 billion with a profit margin of 10.5 per cent and Apple made $41.8 (40.8) billion with a profit margin of 25.35 per cent, A4A said.

Ama ingly, it was not a bad year for the 21st century airline industry. The industry made a profit in 2000, then lost money in seven of the next nine years. The industry made $3.7 billion in 2010 and $390 million in 2011.

“Three years ago, I got to do something exciting – unstick the plus sign on my keyboard,” joked A4A economist John Heimlich.

Asked why the financial metrics were so poor for an industry thought to have addressed its various financial problems with consolidation, capacity cuts, and the increase in ancillary revenue,  Heimlich responded: “We’ve had compressed margins in the face of rising fuel prices (and) in the past year, we were not done with residual bankruptcy costs, which will be put behind us, (and) some one time integration costs from consolidation. (That) will lead to a structurally more healthy industry in the next few years.”

The 10 airlines in the trade group’s numbers, in order of si e, are United, Delta, American, Southwest, US Airways, JetBlue Airways, Alaska Airlines, Hawaiian Airlines, Spirit Airlines and Allegiant Air.

During the year, United reported a loss of $746 million, including items, as it suffered severe operational disruptions following a merger with Continental. Meanwhile American, which operated under Chapter 11 of the bankruptcy code throughout the year, reported a full-year net loss of $1.9 billion including reorgani ation costs and special items. The negative one-time numbers for two of the three biggest airlines negatively skewed industry results.

The second biggest airline, Delta, well past the costs of integration with Northwest, its 2009 merger partner, reported net income of $1 billion.

Heimlich noted that fuel costs have an inordinate impact on airline industry results. For most of the 10 biggest airlines, fuel costs account for between 35 per cent and 37 per cent of costs. But fuel accounts for 49 per cent of Allegiant costs and nearly as much for Spirit, he said. Industry fuel costs rose to $50.4 billion in 2012 from $16.8 billion in 2000.

Additionally, the airline industry pays an inordinately high level of taxes, an issue that A4A hopes to address as it pushes Congress to create a more rational national airline policy.

How much airlines really earn per flyer