Capacity Up, Fares Up, Profits Up For Airlines

Airlines are getting profitable again, and I’m having a hell of a time finding low fares to Spain. These things are not unrelated.

Delta Air Lines reported a $467 million quarterly profit on Monday and United Airlines followed with a $273 million profit today, as the Associated Press reports. Analysts expect all nine of the country’s largest airlines to post profits, with the exception of American Airlines,  which expects a small loss, Terry Maxon reports in The Dallas Morning News.

It is all about, as we learning in Economics 101, supply and demand. Airlines have been trimming capacity for the past few years, but never quite enough to meet the decline in demand. Suddenly the economy is improving, if only slightly, planes are fuller and the airlines have less incentive to offer sale fares.

The importance of keeping capacity low to keep profits up (this is called “supply discipline”) was brought home by an interesting movement in the stock market. After Delta announced that it intended to increase capacity a modest 1 to 3 percent next year, its stock fell — despite the impressive earnings it had just reported, according to the Wall Street Journal.

So what does this mean to us, the lowly leisure travelers? It means higher fares. But let’s face it, that had to happen. Nobody’s going to keep selling  a service at a loss forever. The airlines have squeezed pretty much everything they could out of their unfortunate employees, added fees for everything they could train a price gun on and cut back on everything else.

Speaking of fees, now that the airlines are, at least temporarily, fatter and happier, will the fees go away? Not a chance.

The Associated Press reports:

United is getting some $400 million a year in baggage fees, but [company President  John] Tague said on a conference call that he personally thinks they could eventually collect $1 billion in baggage fees alone.  … “It’s my own view that over time you’ll probably see bag fees become ubiquitous,” he said.

As for me, if I get to Spain, it’s going to cost me.


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