Airline Industry Slashes Profit Forecast as Ticket Prices Keep Rising

Airline ticket pricesThe International Air Transport Association, the global industry group, has cut its 2011 profit forecast for the industry in half, and fares are on the rise. The IATA said it "further downgraded its 2011 airline industry profit forecast to $4 billion. This would be a 54% fall compared with the $8.6 billion profit forecast in March and a 78% drop compared with the $18 billion net profit (revised from $16 billion) recorded in 2010."

The IATA blamed the troubles in Japan, North Africa, and the Middle East for traffic drops and high oil prices for margin compression. The group also said that higher ticket prices meant to offset fuel costs have driven down leisure travel by 3% to 4% in the last five months.

Airlines must now determine which is the lesser of two evils. They can keep ticket prices in check and hope to keep a large portion of their passengers, or they can raise ticket prices to offset higher costs. If carriers chooses higher prices, they risk alienating a certain number of travelers, with the effect being fewer and fewer ticket sales.




U.S. carriers have already begun an aggressive round of ticket price increases. Fees for incidentals like baggage have doubled since 2008.

There is little reason to believe that airlines will try to use lower fares to lure additional travelers. They simply can't afford it. The industry has a decades-long history of huge losses and occasional bankruptcies. Today's fuel costs alone could push some airlines into the red. Many of these carriers are burdened with huge debt loads which make strong profit margins essential. For example, American Airlines (AMR) has long-term debt of over $10 billion.

The summer travel season has just begun. West Texas crude still trades around $100. Airlines can't afford to bring down prices to attract new travelers -- and they may have to charge even more for tickets and extras like checked baggage. It is going to be expensive to travel by air between now and Labor Day.



Increase your money and finance knowledge from home

Bonds for Beginners

Learn about fixed income investments.

View Course »

Introduction to Preferred Shares

Learn the difference between preferred and common shares.

View Course »

Add a Comment

*0 / 3000 Character Maximum

73 Comments

Filter by:
NYOB

You know we have everyone by the balls if everyone in the USA goes on strike and we do nothing but stay home and watch how fast they drop there dam prices .

June 08 2011 at 11:52 AM Report abuse rate up rate down Reply
1 reply to NYOB's comment
Samara

That is basically a form of collective bargaining, Minnie.

Only unions seem to understand that concept..."normal"(sarcasm) Americans don't seem to believe in uniting for any purpose, even for their own good. They are simply too stupid.

We did know the power of collective bargaining once upon a time...the American revolution. Now, Americans think that is a terrible thing. Just read the posts from all these geniuses.

June 08 2011 at 2:22 PM Report abuse rate up rate down Reply
NYOB

why do they use the fuel prices as an excuse? whenever fuel prices go up everyone in the world tends to raise everything what we eat, fly, ect.... but when the prices of fuel drops everything tends to stay the same and nothing drops
and we pay high fares, high food prices, shippin prices ect!!! that is why the economy is soo screwed up!

June 08 2011 at 11:50 AM Report abuse +1 rate up rate down Reply
pszaffuto

Airlines are using a crazy logic. Sell less tickets for more money and make more maney--so they think. That is like running a hot dog stand and saying business is bad and then trying to sell a hot dog for $100.00 to make up the short fall. All such behavior is stupid at the time when people are out of work and have limited cash for pleasures and travel.
Most --Other businesses know how to increase capital when times are slow. Sell ,sell, sell should be the airlines model. But instead they are putting themselves in a position where less people can afford their services and then they will have real trouble. Years ago airlines ran package deals for senior travelers which took in a large amount of money for the year of service. I bet many of those passes were unused just as health club memberships are a large profit for their industry and ...Guess what most people who buy them probably use them less than if they paid as they go. Airlines are their own worse enemy. They should take time to see what the Japanese airlines do. they invest in many modes of travel--producing great trains and even fairies. All these forms of travel bring the japanese industies revenu and help support their plane travel as well-- when things are down for air travel.

June 08 2011 at 3:36 AM Report abuse rate up rate down Reply
Walter Seltzer

On a recent flight between LaGuardia and Atlanta on US Airways, with a stop for a plane change in Charlotte, the airline was so anxious to milk me for $25 by making me check in a teensy gym bag I should have been allowed to carry aboard (it was smaller than my wife's pocket book which was allowed on the aircraft). The bag was so small it got lost at the Charlotte transfer point and missed the connecting flight to Atlants. All that was in the bag was 2 baseball caps - Mets and Yankees - I bought for my grandsons, and my medications. The bag made the next flight to Atlanta but since I couldn't wait for that next flight to arrive in Atlanta, and because I needed my medications and couldn't wait until the next morning for them, I demanded that US Air send somebody on a 120 mile each way round trip to deliver the bag to me in Alabama as soon as the bag arrived in Atlanta.. Also, since the bag and the hats it contained got crushed in transit in the baggage hold, I put in a claim for $34.95 for each of the hats that were crushed (ruined). Thus, to earn the additionsl $25 baggage fee, it cost US Air $70 for the hats, plus the cost of fuel and a driver to deliver the bag to me 120 miles away. Fuzzy math or stupidity... you decide.

June 07 2011 at 9:54 PM Report abuse rate up rate down Reply
dsnewt97

To me, the airlines seem to operate on the premis that no matter how badly they treat their customers or how much they charge to ride in their planes the people will keep on coming back.
I believe that there is a "tipping" point where masssave numbers of potential customers will decide that air travel is just not worth the expense, discomfort and hassel. Business travel needs can largely be handled by teleconferencing while leasure travel is a want and not a need. My wife and I have opted out of the friendly skies and now travel by ship, car or motorhome. Turning turtle is not too bad at all.

June 07 2011 at 9:35 PM Report abuse rate up rate down Reply
betty lou

When I started working in the airline industry in 1960 we had the CAB(Civil AIR BOard) and things appeared to work a hell of a lot smoother and simplier than when DEREGULATION took over. Just my observation

June 07 2011 at 9:18 PM Report abuse +1 rate up rate down Reply
1 reply to betty lou's comment
Samara

betty lou, I've only been in since 87...and I can't wait to get out of this ugliness it's become. It's very demoralizing.

Only 2 more years till I can enjoy that 1/3 of a pension I have left after the bankruptcy judge took away the rest. My 401K has done nothing but tank the last few years...basically useless. Oh well. I guess I can do something part time... I will NOT be slinging any more drinks to unappreciative people, that's for sure.

June 07 2011 at 9:53 PM Report abuse rate up rate down Reply
patcallo

There is plenty of blame on both sides of the isle for the current state of the highly OVER-REGULATED industry. The irony is that the security measures that experts believe actually work are invisible to the traveler (reinforced doors, employee identification procedures, sky marshals -if reinstated). The security measures that are burdensome to the traveler are costing lives (by encouraging road travel), airline profits, and tax dollars, while doing nothing to improve security on the plane.

June 07 2011 at 8:09 PM Report abuse +1 rate up rate down Reply
mike & nancy

airlines need to be more unionized so washington can bail them out. non-union company's can just kiss their a-- goodbye, washington does not care

June 07 2011 at 8:02 PM Report abuse -2 rate up rate down Reply
ROY S. MALLMANN

Just one more industry under the union thumb. While it is not as big a problem as high fuel costs, caused by speculators, I imagine it is part of it. Just maybe they need to re-regulate the airline industry.

June 07 2011 at 6:19 PM Report abuse rate up rate down Reply
aandrtx

You can thank democrats for this. Not only for the rise in prices but for a drop in airline profits because people refuse to travel if they have to subject themselves to molestation and full body cavity searches.

June 07 2011 at 6:13 PM Report abuse +1 rate up rate down Reply
1 reply to aandrtx's comment
Diane

I do believe that it was a Republican that got rid of the air marshalls,which was the start of terrorism on the skies. Just reinstate air marshalls, and there will be no need for millions of TSA employees, or to buy extremely expensive scanning machines, or any of the many other "security" measures whch really don't work. But--don't blame the democrats for this. Instead of "blanketing" all of the country's problems and saying it is the fault of the democrats, take a good long look at a few years of history before you shoot your (obviously) very right-winged mouth.

June 07 2011 at 6:51 PM Report abuse +3 rate up rate down Reply