Airline Industry: Record Passengers, Falling Profits

2. A Record Number of Passengers Generated Fewer Profits • US airlines carried a total of 823.0 million passengers during 2016, a record amount –719.0 million were domestic and 103.9 million were international. • The total of 414.4 million passengers during the first 6 months of 2017 was also a record for that period, with 360.0 million, domestic, and 53.5 million, international. • Despite these records, total 2016 after-tax profits for 25 US scheduled passenger airlines plummeted to $13.5 billion versus 2015’s $24.8 billion. Profits were $10.3 billion for the first 3 quarters of 2017 versus 2016’s $10.4 billion (for 24 US airlines).

3. The Costs of Flying • Fuel is the #1 operating expense for airlines. The cost of a gallon of jet fuel has increased from $1.25 during 2016 to $1.56 during 2017, a 24.8% increase, and then to $1.93 during early 2018. • Labor is the second-largest operating expense. During 2016, there were 686,000 full-time and part-time employees at US passenger and cargo airlines, which was exceeded during the first 11 months of 2017, at 703,500 total employees. • During the first 9 months of 2017, fuel accounted for 16.7% of 24 reporting airlines’ total operating expense; however, labor was more than twice, at 35.0%. “Other” was third at 20.5%, which includes passenger food, advertising, insurance, etc.

4. Report Card for Largest Airlines • Based on its 2016 income statement, American Airlines was #1, at $40.1 billion; followed by #2 through #5: Delta Air Lines, $39.6 billion; United Airlines, $36.5 billion; Southwest Airlines, $20.4 billion; JetBlue, $6.6 billion. • The top-5 list was a bit different when the metric was total passengers (as of 1/5/18): American Airlines, 197.3 million; Delta Air Lines, 171.3 million; Southwest Airlines, 135.7 million; United Airlines, 138 million; Air Canada, 38.5 million. • According to an August 2017 YouGuv survey, 35% of travel, restaurant and lodging industry professionals said Southwest Airlines was their favorite carrier; followed by American Airlines, 15%; Delta Air Lines, 11%; and United Airlines, 8%.

5. Ticket Prices and Safety Record • The average base round-trip domestic airline fare was $344.22 during 2016, compared to $363.23 for 2015, or a 5.2 decrease. The combined average bag and change fees declined just $0.17, from $22.87 for 2015 to $22.70 for 2016. • According to the U.S. Bureau of Transportation, the average round-trip domestic air fare during Q1 2017 was $352, a 5.0% decrease from Q1 2016. For Q2 2017, the average domestic air fare was slightly more, at $356, a -0.9% decrease from Q2 2016. • The Aviation Safety Network reported only 10 fatal airliner accidents, with 44 facilities worldwide during 2017, making it the safest year ever. None of the major US airlines has had a fatal crash since 2011, and no fatality onboard since February 2009.

6. “Where’s My Bag? Why Was I Bumped?” • The U.S. Bureau of Transportation reported the rate of involuntary denied boarding, or bumping, during Q3 2017 was 0.15 per 10,000 passengers, the lowest quarterly rate since 1995, and compared to a rate of 0.69 for Q3 2016. • During Q3 2017, Virgin America had the lowest number of bumps (3) and Southwest Airlines, the largest (1,499). Delta Air Lines and Virgin America had the lowest rate per 10,000 customers, or 0.01%, while Spirit Airlines had the highest, at 0.54. • Transfer handling was the #1 reason for delayed bags during 2016, at 47%; followed by failure to load, 16%; ticketing error/bag switch/security/other, 15%; and airport/ customs/weather/space-weight restriction, 10%.

7. Keeping Passengers Satisfied • According to the J.D. Power 2017 North American Airline Satisfaction StudySM, overall satisfaction increased 30 points, to 756 (on a 1,000-point scale). Involuntary denied boarding had the greatest negative effect on overall satisfaction. • Alaska Airlines was top-ranked (765) for the 10th consecutive year and was followed by Delta Air Lines (758), American Airlines (736), United Airlines (716) and Air Canada (709). The rankings of the last 3 were less than the industry average of 740. • In its August 2017 report, The US Customer Experience Index, Forrester reported JetBlue Airways, Southwest Airlines, Hawaiian Airlines, Virgin America and Alaska Air received an “OK” rating, with all other major airlines rated “poor” or “very poor.”

8. Advertising Strategies • Although the process can be complex and time-consuming, local retailers, especially those in the luxury and personal services categories, may find opening a location in the local airport a good expansion opportunity. • If you’re in a smaller market, then look for larger to mid-size airlines, such as Allegiant, which has a base in Punta Gorda, FL, that have expanded into your market. Promote the value of advertising locally to maximize the number of local passengers. • Since Delta Air Lines is proactively targeting Millennials, even as they are still in college, other major carriers are sure to follow. Show airlines the best programming on your station and your Website to communicate with Millennials.

9. New Media Strategies • Airlines can use baggage issues, involuntary denied boarding, customer complaints, safety, etc. as topics for social media, especially when they have an above-average to excellent records. • Airlines with loyalty programs that reward customers for expenditures at restaurants, making product purchases and renting a car should emphasize their more valuable program than airlines that only provide rewards for flights. • Airlines can maximize their relationship with Millennials with travel information or links to travel information to the experiential and adventurous destinations that attract young adults and provide incentives to establish their loyalty through later life.