The top American airlines are making more money than ever — but don’t expect it to mean lower prices for passengers.
American Airlines, United Airlines, and Delta Air Lines all reported record profits for the second quarter. The ebullient earnings calls stood in stark contrast to the industry’s dire financial state in recent years, when all three major airlines were hobbled by bankruptcies and the growing pains of major mergers.
The news was so good that American, which merged with US Airways in December, said it would boost its pension contributions for employees, and, for the first time since 1980, start paying a quarterly dividend to its shareholders. American and United also said they would launch $1 billion share-buyback programs, following the lead of Delta, which renewed its dividend and share buybacks programs last year.
“It is hard to believe that less than eight months ago, American was in bankruptcy yet today we are reporting record profits, prepaying debt, making additional pension contributions and declaring dividends to shareholders,” the carrier’s chief executive Doug Parker said in a message to employees.
Other major U.S. carriers — JetBlue, Alaska Airlines, and Southwest Airlines — also posted impressive earnings for the second quarter, and on Monday, the surging Virgin America announced that it would go public.
But with investors primed to reap the rewards of a newly buoyant airline industry, there was no sign that consumers would see any financial benefits. Citing regulatory laws, spokespeople American and United both declined a request for comment on whether they planned to use their new cash cushion to reduce customer fares and fees. A spokesperson for Delta did not immediately return a request for comment.
Rather, airline industry analysts predicted, industry trends point toward sustained and even higher prices for consumers amid the reversal of the industry’s fortunes.
Last week’s strong earnings reports represent “evidence that people are willing to pay these higher prices to generate those kind of profits,” said Bob Mann, an airline industry analyst and former airline executive. “Why would the carriers reduce price? They’d be sub-optimizing both revenue and profit.”
Costs associated with air travel have risen the past several years. Consumers paid an average of $88 more for a domestic round-trip in the first half of 2014 than they did in the first half of 2010, according to data from Airlines Reporting Corporation. Passengers also paid an average of $9 more in ancillary costs — baggage fees, on-board food and beverages, frequent flyer deals, and other costs — for each of their trips last year than they did in 2007, according to data from IdeaWorks Co.
Kendall Creighton, communications director for aviation consumer advocacy group Flyers Rights, said she was troubled by the rising air travel costs facing consumers, which she says had shown no sign of slowing down.
For the average American family, “it’s almost impossible to go on vacation,” Creighton said. “There’s no stopping these fees.”
The airline industry linked price increases to higher taxes. “The airline industry is cyclical,” Jean Medina, a spokeswoman for Airline for America, an industry group, said in an e-mail. “While the industry has been modestly profitable for the past four years, it comes after losing tens of billions of dollars and shedding one-third of the workforce.”
It may not all be bad news for consumers. Airline passengers could derive indirect benefits from the airlines’ high profitability in the form of newer aircraft and improved service from better-compensated, happier employees, analysts said.
Still, analysts agreed, these benefits are unlikely to extend directly to the checkbooks of passengers who already feel nickel-and-dimed by the industry.
Analysts found another explanation for high prices in the recent wave of mergers that have increased consolidation in the industry, a trend which they say has reduced competition and kept prices high. They also pointed toward the absence of major new entrants into the market since Virgin America’s inauguration in 2005. (PEOPLExpress has recently revived flights and Eastern Air Lines is expected to resume operations next year, but their impact is predicted to be regionally limited).
Until more new carriers disrupt the market, consumers are unlikely to see lower prices, said Joshua L. Schank, chief executive of the think-tank the Eno Center for Transportation. “Starting new airlines and allowing them to create new innovations is how you bring down prices and mostly benefit consumers,” he said.