American, Delta, and United have all recently reported record profits after decades of struggle.
Last year, American Airlines saw its profits surge 50% to $6.3 billion.
According to Skift’s Brian Sumers, one major airline CEO believes the industry has solved its profitability problem for good.
“My personal view is that you won’t see losses in the industry at all,” American Airlines CEO Doug Parker said at the airline’s annual meeting last week. “We have gotten to the point where we like other businesses will have good years and bad years, but the bad years will not be cataclysmic. They will just be less good than the good years.”
Although revenue growth across the board slowed down in the first quarter of the year, the airline industry is still going strong.
Even though Parker, as noted by Sumers, has long been an optimist in the strength of the airline business, his optimism is not unwarranted.
The airlines business has traditionally been a very volatile industry with thin margins and high capital requirements. That’s means the room error is very narrow. As a result, in decades past, airlines have often teetered near bankruptcy.
Over the past few years, there’s been a fundamental change in the way major US airlines are run. After the latest round of bankruptcies and consolidation that saw American merge with US Airways, Delta with Northwest, and United with Continental, it seems airline management has become more focused and efficient.
Airlines have been careful to exercises discipline in expanding capacity and routes. They have also keyed in on the areas that deserve the most investment and what customers can do without.
Although cheap crude prices over the past 24 months have certainly boosted airlines’ financial performance, it would be unfair to attribute solely to lower fuel expenditures.
Last month at Delta’s media day, CEO Ed Bastian noted that current oil prices are nearly identical to that in 2005. That year, both Delta and future merger partner Northwest filed for bankruptcy. In 2015, Delta reported $4.5 billion profits while returning $1.5 billion in profit-sharing to employees.
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