Study: Recovering Airline Industry On Track For Profitability In 2013

I found a very pertinent article today on the Aero-News Network that point to several factors that are creating profits for the Airline Industry and I am sharing some excerpts with you:

Revenue growth has recovered to pre-recession levels and the U.S. airline industry is expected to maintain profitability in 2013, according to Tailwinds, a report on the airline industry from PwC US. However, while the industry has become better at managing capacity and generating ancillary revenues, it faces rising costs for fuel, labor and maintenance. To achieve profitability under these conditions, airlines are focused on operating more efficiently and securing new revenue streams, including replacing 50-seat jets with larger planes within the regional airline industry.”

“There’s no question the domestic airline industry is undergoing a renaissance marked by increased revenue and stable profitability,” said Jonathan Kletzel, U.S. transportation and logistics leader, PwC. “The price of domestic airline tickets has increased in line with inflation over the past five years, growing less than two percent in real terms, and airlines have boosted revenue by charging new fees as well as introducing ancillary products. When taking into account all fees and ancillary revenues, airlines are seeing as much as a nine percent increase in average base airfare. Going forward, you can expect airlines to roll out additional sources of revenue, by strategically charging fees and bundling services that are aimed at enhancing the travel experience. These factors, combined with the prospect of lower fuel prices, support a positive outlook for the industry in 2013.”

“When airlines negotiate merger terms, they often agree to higher salaries in order to gain union buy-in, reversing some of the reductions implemented during past bankruptcies,” Kletzel continued. “An impending pilot shortage is also likely to result in higher pilot salaries. Starting in August, new commercial co-pilots will need a minimum of 1,500 hours flight experience, six times the current requirement. Next year, the Federal Aviation Administration will also require more rest time between flights. These changes are coming at a time when baby boomer pilots are reaching the mandatory retirement age, military pilots are staying in the military longer, and foreign airlines are competing for pilots.”

Its small size limits the jet’s profitability at a time of high fuel prices and less attractive capacity purchase agreements. Regional airlines are beginning to make the move to larger, 70-to-90 seat jets, with production on the rise, as larger jets can spread fuel costs and overhead over more seats, reducing unit costs. In addition to fuel efficiency, the larger jets offer an opportunity to increase fares. With 20 or more additional seats, airlines can offer first class and premium economy sections, providing an advantage for both the airlines and their customers.