Carriers’ expenses are up 31 percent in first quarter as red ink starts to flow

The Air Transport Association (ATA), a trade group representing the nation’s airlines, said the industry’s costs jumped by a record 31 percent in the first quarter of 2008 vs. the same period in 2007 – and warned that carriers are facing big losses this year in spite of some 15 consecutive fare increases, imposition of many new passenger fees, and a round of cost-cutting measures. For the second quarter of 2008, American Airlines reported a loss of $1.4 billion, vs. a $317 million profit a year earlier; Delta turned in a loss of just over $1 billion, compared with a $1.6 billion profit in the second quarter of 2007. At Continental, the second-quarter loss was just $3 million, vs. a profit of $228 million a year ago.

Fitch Ratings, which tracks the airline industry’s liquidity and credit, issued a dire warning last week that “all of the legacy carriers will experience rapid erosion of cash levels in the post-Labor Day period. This erosion could threaten their survival if adverse fuel trends continue,” it said. “Multiple bankruptcies and liquidations are increasingly likely in 2009.”

The ATA noted that the industry’s 31 percent first quarter cost increase compares with a 4.2 rise in the Consumer Price Index. Airline fuel costs were up more than 50 percent for the quarter, ATA said, while maintenance materials costs rose almost 20 percent, and operating costs per available seat mile went up 1.5 cents to a record 13.72 cents. The airlines managed to squeeze out a little more revenue per passenger, but not enough to keep pace with rising expenses. “Despite a 2.6 percent increase in passenger yield, the average break-even load factor (i.e.., percentage of seats occupied) rose 6.2 points to 83.5 percent, well above the average realized load factor of 77.2 percent,” ATA said. Bigger rounds of airline cost-cutting will come this fall, as carriers large and small reduce their capacity substantially, with corresponding employee layoffs. One of the biggest reductions will be at Midwest Airlines, which said last week it intends to cut its staff by 40 percent as part of its previously announced plan to eliminate all 12 MD80s from its fleet. In other staff reductions announced last week, American said it will let go 200 pilots, and AirTran said it will release 180 pilots and 300 flight attendants.

Meanwhile, the ATA continues to lobby for Congressional action to rein in oil speculation in the commodities markets. Most recently, the ATA-backed group Stop Oil Speculation Now released results of a survey showing that 80 percent of Americans believe speculators manipulate the price of oil to increase their trading profits, and 67 percent think the government should regulate such activity.
Not everyone is sympathetic to ATA’s effort, which recently sought to enlist the assistance of frequent flyer program members in lobbying Congress. The consumer group Coalition for an Airline Passengers Bill of Rights (CAPBOR) blasted the airlines’ request to frequent flyers as “the height of arrogance,” given ATA’s lobbying to prevent Congress from enacting passenger protection legislation. “We have been fighting for over a year now to get Congress to mandate humane treatment for stranded airline passengers,” said CAPBOR founder Kate Hanni. “At every step, our volunteers are met be armies of paid airline lobbyists and lawyers arguing that providing decent treatment for passengers would interfere with the operation of the free market. Now, when that same free market pinches the airlines, they are the first ones to run to the government for help.”