Economic snapshot: Aviation
Rising fuel expenses have diverted tens of billions of dollars away from the bottom line of airlines.
Content
ECONOMIC SNAPSHOT | AVIATION
Fuel a drag on airline profits
By TERRY MAXON
Airline Writer [email protected]
By TROY OXFORD
Staff Artist [email protected]
There are many reasons why most major carriers filed for bankruptcy protection during the past decade. The terrorist hijackings of Sept. 11, 2001, drove away passengers and hurt the economy. The recession toward the end of the decade also took away revenue and passengers. But more than anything, rising fuel expenses drained tens of billions of dollars away from the bottom line.
1,500%
Major cost Change in fuel cost and usage
The U.S. airline industry burned 19.76 billion gallons of jet fuel in 1999, the most in the industry’s history. Since then, the industry’s usage has declined, with 2012’s fuel usage down 19 percent from 1999. Even as usage declined, spending on jet fuel has soared, jumping from $10.5 billion in 1999 to $47.3 billion in 2012. It peaked at $55 billion in 2008. Back in 1999, only 10, 11 or 12 cents of every $1 of operating expense was spent on jet fuel. By 2012, fuel had become the biggest expense for almost all U.S. airlines. American
10.3% (1999) 35.2% (2012) 11.3% 29.4% 12.3% 37.2% 10.3% 35.4% 9.1% 26.9%
1,200%
Delta
900%
Southwest Fuel cost United
600%
US Airways
Heightened efficiency
300%
Fuel usage
As airlines replaced older aircraft with more efficient models, they’ve been able to reduce their unit fuel usage. Number of available seat miles flown per gallon used (one seat flown one mile = one available seat mile)
’10
0 1977
’80
’90
’00
American
54.1 (1999) 63.3 (2012) 51.2 65.2 55.0 69.4 56.1 66.1 54.7 67.3
Profits suffer
Fuel wasn’t the only factor for the airlines’ problems, particularly in the period after the Sept. 11, 2001, attacks and during the recession. But as airlines adjusted to nonfuel shocks, fuel prices climbed again, and industry profits suffered as a result.
NET INCOME FOR U.S. AIRLINES
$20 billion $10 0 $-10 $-20 $-30 ’00 ’02 ’04 ’06 ’08 ’10 ’12
Delta
Southwest
United
US Airways
SOURCES: U.S. Bureau of Transportation Statistics; the airlines; Dallas Morning News research
The bottom line
“Contrary to what politicians want the public to believe, airlines are publicly traded corporations and have a fiduciary responsibility to be profitable. Unfortunately, the traveling public does not understand how much fuel airlines consume and how expensive it has become to operate. Since year 2000, inflation increased by 33 percent. Over this same time period, the average air fare per mile for all major U.S. airlines increased by only 9 percent.” “Fuel prices have been perhaps the primary driver of the airline flight reductions we’ve seen domestically over the last six years. In the current environment of high and volatile fuel prices, airlines have cut marginally profitable flights and consolidated service at their core hubs. This has been a painful process for the nation’s smaller airports, many of which have seen flight options fall and average fares rise simultaneously.” “For most airlines, fuel costs are now a bigger part of their operating expenses than labor expenses compared with 2000. To their workers’ regret, airlines had to slash expenses from the labor side because the carriers could do little to hold down the price of jet fuel. We can blame many things for the bankruptcies, failures, mergers and union concessions since 2000. But I’d put fuel expenses at the top of the list.”
Robert Herbst, president, AirlineFinancials.com and retired airline pilot
Michael D. Wittman, research assistant, Massachusetts Institute of Technology, International Center for Air Transportation
Terry Maxon, airline writer, The Dallas Morning News
Fuel a drag on airline profits
By TERRY MAXON
Airline Writer [email protected]
By TROY OXFORD
Staff Artist [email protected]
There are many reasons why most major carriers filed for bankruptcy protection during the past decade. The terrorist hijackings of Sept. 11, 2001, drove away passengers and hurt the economy. The recession toward the end of the decade also took away revenue and passengers. But more than anything, rising fuel expenses drained tens of billions of dollars away from the bottom line.
1,500%
Major cost Change in fuel cost and usage
The U.S. airline industry burned 19.76 billion gallons of jet fuel in 1999, the most in the industry’s history. Since then, the industry’s usage has declined, with 2012’s fuel usage down 19 percent from 1999. Even as usage declined, spending on jet fuel has soared, jumping from $10.5 billion in 1999 to $47.3 billion in 2012. It peaked at $55 billion in 2008. Back in 1999, only 10, 11 or 12 cents of every $1 of operating expense was spent on jet fuel. By 2012, fuel had become the biggest expense for almost all U.S. airlines. American
10.3% (1999) 35.2% (2012) 11.3% 29.4% 12.3% 37.2% 10.3% 35.4% 9.1% 26.9%
1,200%
Delta
900%
Southwest Fuel cost United
600%
US Airways
Heightened efficiency
300%
Fuel usage
As airlines replaced older aircraft with more efficient models, they’ve been able to reduce their unit fuel usage. Number of available seat miles flown per gallon used (one seat flown one mile = one available seat mile)
’10
0 1977
’80
’90
’00
American
54.1 (1999) 63.3 (2012) 51.2 65.2 55.0 69.4 56.1 66.1 54.7 67.3
Profits suffer
Fuel wasn’t the only factor for the airlines’ problems, particularly in the period after the Sept. 11, 2001, attacks and during the recession. But as airlines adjusted to nonfuel shocks, fuel prices climbed again, and industry profits suffered as a result.
NET INCOME FOR U.S. AIRLINES
$20 billion $10 0 $-10 $-20 $-30 ’00 ’02 ’04 ’06 ’08 ’10 ’12
Delta
Southwest
United
US Airways
SOURCES: U.S. Bureau of Transportation Statistics; the airlines; Dallas Morning News research
The bottom line
“Contrary to what politicians want the public to believe, airlines are publicly traded corporations and have a fiduciary responsibility to be profitable. Unfortunately, the traveling public does not understand how much fuel airlines consume and how expensive it has become to operate. Since year 2000, inflation increased by 33 percent. Over this same time period, the average air fare per mile for all major U.S. airlines increased by only 9 percent.” “Fuel prices have been perhaps the primary driver of the airline flight reductions we’ve seen domestically over the last six years. In the current environment of high and volatile fuel prices, airlines have cut marginally profitable flights and consolidated service at their core hubs. This has been a painful process for the nation’s smaller airports, many of which have seen flight options fall and average fares rise simultaneously.” “For most airlines, fuel costs are now a bigger part of their operating expenses than labor expenses compared with 2000. To their workers’ regret, airlines had to slash expenses from the labor side because the carriers could do little to hold down the price of jet fuel. We can blame many things for the bankruptcies, failures, mergers and union concessions since 2000. But I’d put fuel expenses at the top of the list.”
Robert Herbst, president, AirlineFinancials.com and retired airline pilot
Michael D. Wittman, research assistant, Massachusetts Institute of Technology, International Center for Air Transportation
Terry Maxon, airline writer, The Dallas Morning News
