With Delta Airlines leading the way, the major players in the airline industry are poised to post a whopping $2.4 billion in profits in the third quarter, one industry analyst predicts.
AirlineFinancials.com expects that the nine biggest U.S. carriers will collectively report $2.4 billion in profits on $33.3 billion in revenue – with an average net profit margin of 7.2 percent. If those estimates hold water, the earnings would be a record profit in the third quarter and the second highest revenue for any third quarter.
AirlineFinancials.com projects that Delta will notch the highest profit ($740 million) and revenue ($8.8 billion) figures.
The nine airlines in the estimates are: Delta Airlines, American Airlines, United Airlines, Continental Airlines, US Airways, Southwest Airlines, JetBlue Airlines, Alaska Airlines, and Air Tran. All of those carriers except for Alaska serve RDU.
Part of the reason for the impressive profits is that the industry is in the midst of a consolidation wave. Delta and Northwest merged in recent years, and United and Continental completed another merger at the end of the third quarter. Southwest Airline is also in the process of buying AirTran airways.
Carriers also have cut capacity in recent years. That and the mergers are giving them more pricing power at a time when demand has picked back up. Airline consultant Bob Herbst, who runs AirlineFinancials.com, expects that the carriers will continue to use that power, projecting that fares will rise 10 percent to 15 percent next summer.
That’s because carriers still have a big financial hole to dig out of. He says that the industry lost well over $10 billion in the past decade and that carriers badly need to recapitalize. Airline fleets are filled with older, less fuel-efficient planes, and buying new ones will cost a lot of money.
Carriers also will have to cover rising costs due to inflation. But airlines can’t get more passengers on planes, and unions already have given all the concessions they are prepared to make. That leaves just one option.
“Air fares are going to go up,” Herbst says.