Airlines make a killing on fees
Last comment by huntrick 5 months, 1 week ago.

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First, the banks and credit card companies sought to recoup the losses they made themselves by ramping up fees and inventing new ones.

The airlines, crying over fuel prices and maintenance costs, instituted fees for baggage and other things to recoup the costs. NBC news reported last evening that the industry made $29 Billion (that's B for Billion) from the added fees. That implies that they made that much profit over and above the operating costs of the industry.

I have to ask, is that a reasonable return for any industry to make on service fees alone?

I don't think so.

Congress needs to investigate and slap some huge fines on this industry for overcharging passengers. I've written my congressman.


Latest Activity: Sep 12, 2013 at 5:27 PM


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JimmyMack commented on Friday, Sep 13, 2013 at 06:09 AM

Good post. There are too many independent taxing entities out there other than the Government. I freak at my bundled Comcast charges every month and my T-Mobile fees with its obscure yet growing mini-taxes. We should only allow the state and federal rights to taxation and not individual profit driven entities to do the same thing.

sebekm commented on Friday, Sep 13, 2013 at 12:27 PM

Part I:

But the obvious question is: How much money are they SPENDING - or even more importantly - how much money is the industry LOSING? And let's not forget history:

Bin Laden succeeded in dealing us a significant blow on 9/11 by turning those planes into instruments of death.

"Even before the Sept. 11 attacks, major airlines such as United and American faced declining profits. The primary culprits: rising expenses, excess capacity because of the growth of the airline industry and competition from low-cost carriers like Southwest Airlines.

After the terrorist strikes, the industry went into a financial tailspin.

But the terrorist attacks were only partly to blame for a decade of economic misery.

An outbreak of severe acute respiratory syndrome, or SARS, in Asia cut demand on some international routes and cost the industry billions in revenue in 2003.

Then, starting in 2005, oil prices began to soar, pushing fuel costs up from about 13% of total expenses for most airlines to nearly 40% or more today. Just as airlines were adjusting to the higher fuel prices, the recession struck in 2008, further damping demand for air travel."

See: http://articles.latimes.com/2011/sep/...

and:

"In a paper published in 2011, Berkeley economist Severin Borenstein examines some of the most common explanations for the airline industry’s dismal performance, and why experts and deregulation advocates failed so badly to predict what would happen after deregulation more than 30 years ago.

Here are a few key stats:

•Domestic passenger airline operations lost $10 billion from 1979 to 1989, made profits of $5 billion in the 1990s and lost $54 billion from 2000 to 2009. To put these numbers in context, at the end of 2009, the entire book value of U.S. passenger carriers’ assets was about $163 billion and the book value of shareholder equity was $10 billion. Even at the end of 2000, after six consecutive profitable years, their assets were $159 billion and shareholder equity was $40 billion.

•From 1979 to 2001, the U.S. airline passenger fleet grew in every year, by an average of 4.9% per year measured by aircraft and 3.6% per year measured by aircraft-seats. From the end of 2001 to the end of 2008 (latest available date), aircraft and aircraft-seats declined by 1.7% and 1.4% per year respectively.

sebekm commented on Friday, Sep 13, 2013 at 12:36 PM

Part II:

•(As of 2011), (t)he domestic airline industry (had) reported negative net income in 23 of 31 years since deregulation and a strongly negative aggregate net present value of earnings.

Fuel costs increases have certainly been a significant component of losses in some years, most obviously in 2008. Over the deregulation era, however, oil costs were highest in the first 7 years and the most recent 5 years, over $40 per barrel in 2009 dollars, and much lower during the 19 intervening years. [F]rom 1986 to 2004 the average jet fuel price was below $1.40 per gallon — relatively stable and much lower than in the early period of deregulation. Yet, the industry still lost money in 13 of those 19 years and on net lost $31 billion in 2009 dollars."

See: http://freakonomics.com/2011/06/24/wh...

The airline industry lost me as a frequent passenger well before 9/11. I don't defend their profits - if they ARE making profits. But to pound them by saying they "made 29 billion" from additional fees without going on to say what those fees mean to the bottom line of airline industry profitability tells half the story and does a disservice to a significant linchpin of the U.S. economic and transportation systems.

The fact is that the airline industry - despite all the additional fees - until recently - has been underperforming financially. While they make billions in fees, they have still lost billions.

See: http://www.airfarewatchdog.com/blog/8...

The industry is supposedly "on track" for "profitability in 2013," I suspect a large part of this has to do with those increased fees you cite. See:

http://www.prnewswire.com/news-releas...

It's great to communicate with our elected representatives whenever we feel the need - at least answering our letters/emails/phone calls gives them something to do. But I wouldn't expect much "action" out of your latest inquiry. The airline industry is digging out of a big hole they were already in before Bin Laden added fuel to the fire in 2001. Our government is supposed to be overseeing the industry - despite deregulation legislation which was enacted way back when (1978) under Jimmy Carter. But BECAUSE OF deregulation there is only so much they can do to influence what the industry does and why it does it.

sebekm commented on Friday, Sep 13, 2013 at 12:38 PM

Part III:

In a capitalist system, every business entity has a right to reasonable profitability. What is reasonable? That's always been a tough question to answer. I think that the answer - in context - depends on the financial conditions of the entity and the state of this country's economy at large. But the bottom line is this:

For many years the airline industry has been digging itself out of a hole for precise reasons that even our smartest economists and financial gurus haven't been able to put their finger on. Mismanagement may be part of it; deregulation (IMHO) has a lot to do with it as well. But there is no doubt that the additional security and all the apparatus created since 9/11 to keep air travel as safe as possible has greatly increased the expenses of the airline industry as a whole. They have a right to recoup those expenses.

JimmyMack commented on Friday, Sep 13, 2013 at 15:21 PM

Sebe, you are not ghost writer for Forbes Magazine are you?

sebekm commented on Saturday, Sep 14, 2013 at 14:00 PM

No - they wouldn't like my verbosity (or my run-ons).

huntrick commented on Sunday, Apr 06, 2014 at 06:03 AM

I agree. I was only venting my disdain of the airline fees. Didn't expect a paper on Capitalism. Good job, though.


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