Show a profit after years of turmoil by trying to run a more efficient operation – and get criticized for customer service.
“And new airline industry numbers out today show that while millions of passengers suffer through record delays, cancellations and lost baggage – airline profits have been soaring,” ABC “World News” anchor Charles Gibson said September 17. “Airlines enjoyed their best quarter in seven years between April and June, with profit margins of almost 9 percent. Can it be that what is bad for passengers is good for the airlines?”
But Gibson left out a few details of what the airlines have gone through since 9/11. Four of the top 10 domestic carriers – Delta Air Lines (NYSE: [1]DAL), United Airlines (held by parent company UAL Corporation, NASDAQ: [2]UAUA), US Airways (NYSE: [3]LCC) and Northwest Airlines (NYSE: [4]NWA) – have operated under bankruptcy at some point since 9/11.
Increased [5]competition from low-cost carriers (like Southwest Airlines) has lowered airfares across the board since 9/11.
But higher oil prices haven’t helped (from [6]more than $20 a barrel in September 2001 to [7]more than $80 a barrel). Airlines attempting to keep fares low while dealing with high fuel prices have been forced to make cuts elsewhere – including [8]labor cuts and [9]some amenities.
Even stock pickers warn airline investments are a bad choice. “[T]he bad news – I don’t want to own any airlines,” said CNBC’s Jim Cramer on the September 18 “Mad Money.” “Because I am a believer oil is not done going up … We are concerned about all the oil rally and all the airlines fall.”
So, despite all the vulnerabilities in the airline industry and a bearish outlook for airline stocks from at least one Wall Street analyst, ABC “World News” still depicted the airlines as a flourishing industry that’s just attempting to bilk passengers and employees.
“The government numbers released today cover 21 carriers, the big airlines as well as major low-cost and regional airlines,” ABC correspondent Lisa Stark said. “They show that all those packed planes and crowded terminals are paying off in big profits. From April to June of this year, airlines turned a profit of $3 billion, the best return since before 9/11. And all of that is before the busy summer travel season. Analysts say airlines managed to make money even with sky-high fuel costs by dumping amenities and personnel and by forcing workers who remain to take billions in wage and benefit cuts.”
At the peak of the turmoil for airline industry in 2003, [10]Stephen Moore of the Cato Institute wrote that beleaguered American Airlines and United Airlines were losing $5 million a day thanks to paying out union-demanded wages and benefits.
“One can only wonder whether the union bosses fighting United and American have lost all sense of economic reality,” Moore wrote. “With salaries that can exceed $100,000 per worker, if labor costs are not cut in the next several months, there will be no jobs at all for the union to fight for. Federal officials cited out-of-control salaries as a primary cause for turning down United's recent $1.5 billion bailout request.”
Stark didn’t include in her report that those moves were a necessity for some airlines’ survival, and she lumped the entire profits of 21 airlines into one grand total.
She was especially critical of US Airways, which didn’t come out of bankruptcy [11]until October 2005 after merging with America West Airlines and is now getting back on its feet. “US Airways had the biggest profit margin this spring but also the worst on-time arrival for the 20 major carriers.”
Airlines have been a target of various media reports during the peak travel season. In August, NBC “Nightly News” [12]blamed American Airlines for government air traffic control system shortfalls. On August 15, NBC’s “Today” anchor Meredith Vieira [13]made an outrageous request of Northwest CEO Douglas Steenland – asking him to guarantee that no flight would ever be cancelled again.