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AirKarp

Airline profits in perspective

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Apple made considerably more in three months than the entire US airline industry will make for an entire year.

IATA predicts that US and Canadian airlines will earn a collective net profit of $13.2 billion in 2015, which is expected to comprise about half of all global airline profits for the year. These are indeed halcyon days for the US airline industry, which has historically struggled to consistently make money. But during a visit to Washington DC this week, IATA DG and CEO Tony Tyler cautioned that it’s “important to keep these profits in perspective.”

Some in Congress and in the mainstream American media are calling for US airlines to “pass down” profits to consumers by, among other suggestions, lowering fares, scaling back ancillary fees or reverting to the past practice of chasing market share by ratcheting up competition on routes, even if operating a given route may not generate a profit.

“I urge the DOJ and DOT to immediately investigate why airline profits are not more efficiently being passed down to consumers,” Sen. Charles Schumer (D-New York) said late last year.

Tyler pointed out that Apple made a net profit of $18 billion in its fiscal first quarter ended Dec. 27, which means it made considerably more in three months than the entire US airline industry will make for an entire year—even in what will be, by historical standards, an exceptional year for the air transport business. Apple consistently has a profit margin of well over 20%.

“Sadly, the airlines are not hugely profitable,” Tyler said during a media roundtable. “The profit margin for the industry as a whole is about 3%. It may be 6% for the US [airlines], but that certainly is not a thick profit margin. The deal for the US consumer is a good deal. Fares are not high … Fares have risen significantly less than inflation. US airlines are spending $1 billion a month on capital improvements … This is an industry that historically has had trouble making a profit. It is now returning to a level of profitability, and consumers are seeing the benefit of that. It remains a very, very competitive industry.”

I don’t expect Sen. Schumer to urgently call for an investigation into iPhone prices anytime soon.

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