Winter Weather Grounds Airlines' Profits Taken alone, the weather might have been just a bump in the road, but the pain is compounded by the rising cost of jet fuel spurred most recently by the crisis in Egypt. The new challenges come as the industry was celebrating its best profits in a decade.
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Winter Weather Grounds Airlines' Profits

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Winter Weather Grounds Airlines' Profits

Winter Weather Grounds Airlines' Profits

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STEVE INSKEEP, Host:

This winter's fierce storms have forced the cancellations of tens of thousands of flights and likely are costing airlines hundreds of millions of dollars. This has added to the financial strain on airlines, which are also facing rising fuel costs right now. It's once again a challenging time for an industry that just had its first profitable year in a decade.

NPR's Tovia Smith reports.

TOVIA SMITH: In the past 10 years or so, the major airlines had about as much luck making profits as you might have had trying to get a free in-flight dinner. The industry endured the worst decade ever, beginning with September 11th and continuing through the economic recession.

But by 2010, people were finally starting to fly again. The airlines were getting fees for everything from chips to checked bags, and things were starting to take off. That is, until hopes for a similar success in 2011 were frozen in their tracks.

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INSKEEP: There are already at least 10 cancellations in Northwest Arkansas Regional Airport today.

INSKEEP: More than 1,300 flights were cancelled at O'Hare International Airport.

Unidentified Man #2 (Newscaster): Over 600 flights already cancelled and it's just mid-morning.

DANIEL KASPER: The bad weather that we've experienced is going to make for an ugly first quarter.

SMITH: Airline analyst Daniel Kasper says the exact costs are still a bit unclear. Taken alone, the weather might have been just a bump in the road, he says, but the pain is compounded right now by the rising cost of jet fuel, spurred most recently by the crisis in Egypt.

John Heimlich, chief economist with the Airline Transport Association, says the price jumped from $106 a barrel at the end of December to 115 by the end of January.

JOHN HEIMLICH: Historically, to see $9 a barrel in a month, we wouldn't see that in a year. And so we are seeing carriers start to react to the run-up again.

SMITH: Delta, for example, announced recently it's cutting some less-profitable flights and retiring some old aircraft, and president Ed Bastian has warned that travelers may begin to feel the impact of rising fuel prices as well.

ED BASTIAN: In the last few weeks, it's been running very fast. If fuel's going to stay at that 275 gallon level, we're going to need to continue to raise ticket prices to cover that cost.

SMITH: Indeed, because fuel is such a huge part of airlines' operating costs - an extra $10 a barrel, for example, on the millions of barrels that airlines use adds up to more than the industry's entire 2010 profit margin.

Giovanni Bisignani is head of the International Air Transport Association.

GIOVANNI BISIGNANI: Our margins of 2.7 percent are still pathetic. We remain a sick industry.

SMITH: In the long term, more fuel-efficient aircraft will help. But industry analyst John Pincavage says airlines will also have to look more immediately to raising fares and fees and making even more drastic cuts in what they offer travelers. Even things like space in the overhead storage bins may no longer be free.

JOHN PINCAVAGE: You know, they've gotten the low-hanging fruit. Now every year it gets harder to try to offset cost increases.

SMITH: One possible silver lining - at least this year - the brutal winter may increase demand on flights to Florida, for example, and that could help boost airline revenues. That is, as long as the planes can take off.

Tovia Smith, NPR News.

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