Air Carriers Begin to Show Profits Again
RENEE MONTAGNE, host:
Our business news starts with profits for the airline industry.
(Soundbite of music)
MONTAGNE: A surge in American travel this summer has helped a number of airlines. United Airlines' parent company UAL announced Monday that it expects to report its first profit in six years.
United emerged from bankruptcy in February, after struggling for years with high costs, management missteps, and a major hit on travel after September 11th terrorist attacks.
We're joined in the studio by David Field, America's editor of Airline Business Magazine. And, you know, David, I just mentioned United, but American, continental, U.S. Airways - they've all either reported or are just about to report a profitable quarter. What changed?
Mr. DAVID FIELD (Editor, Airline Business Magazine): Two things have changed. One is, as you said, a tremendous surge in travel. People are lining up with cash money in their hands, willing to give the airlines pretty much what the airlines want for a ticket. It's the first time in years that price hikes, fare increases have gone through.
At the same time, you're seeing the effect of the cost cutting that the airlines have embarked upon for the last two years - or in the case of United, three years. Twenty percent fewer flights, 15 percent fewer seats, wages are down by 15-20 percent. At United alone, more than 20,000 employees were basically fired, let go, during the restructuring.
Costs have been slashed dramatically. Some of these airlines no longer have pension obligations. United basically dumped its pensions on the federal government, which means you're talking about much lower operating costs. At the same time, more money is coming in.
MONTAGNE: Well, with the big airlines, they've been trying to raise ticket prices for years and haven't had much luck. Why are Americans willing to pay more now?
Mr. FIELD: Part of it is simply the rising economy. A large part of it is prices at the pump. If you go to the gasoline station, you pay three bucks a gallon. On a certain level, you know that the airlines are also paying a lot more per gallon, and it makes you a little bit more willing to pay a higher price.
MONTAGNE: Does this in any way sense mean the industry has turned the corner?
Mr. FIELD: Only in the sense that we have a rising economy. You know, a rising tide hides all fundamental flaws. Yeah, they've turned the corner in terms of being able to compete and make money in a booming economy. We have to wait and see what happens this winter when travel sloughs off, when there's a slight economic downturn, or if there's a real terrorist scare. That will be the test.
MONTAGNE: Or just, in a word, or if fuel prices go bad - further up.
Mr. FIELD: Fuel prices go up. That's right.
MONTAGNE: David, thanks very much.
Mr. FIELD: My pleasure.
MONTAGNE: David Field is America's editor of Airline Business Magazine.
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