Bureau of Transportation Statistics Archives

Will airlines spend their soaring profits on passengers? (Image: Jim Glab)

Will airlines spend their soaring profits on improvements for passengers? (Image: Jim Glab)

Government statistics released this week show that the U.S. airline industry is achieving levels of profitability undreamed of in previous years. The question for consumers: How much of that money be spent on improving their air travel experience?

According to the Transportation Department’s Bureau of Transportation Statistics (BTS), the U.S. airline industry’s after-tax net profits hit $25.6 billion for 2015 – more than three times what they earned the previous year.

For decades, the airline industry has been characterized by historically low profit margins relative to other businesses; it usually stayed in the low single digits, and often it was a negative number. But for 2015, the industry’s net margin hit a record 15.2 percent, BTS said. That’s almost four times the 2014 margin (4.4 percent).

Source: Bureau of Transportation Statistics

Airline revenues from fares dropped a bit last year, but revenue from passengers hit new records for things that used to be included in the fare – fees from checked bags rose to more than $3.8 billion, and revenue from ticket changes/cancellations increased to just over $3 billion. The biggest bottom line benefit came in fuel costs: for the past several years, the industry had been spending between $42 and $44 billion a year for fuel, but in 2015 they spent less than $27 billion.

And how will passengers benefit from the airlines’ good fortune? It’s true that the major carriers have been renewing their fleets with next-generation aircraft, but those purchases are usually governed by bottom-line considerations – mostly that they are more fuel-efficient. But they often cram in more seats with less personal space in economy, and they are turning to new “slimline” designs – which many passengers dislike — to save weight and to free up space for another row or two of seating.

And what about ground facilities? Major improvements are coming to some big airports, but the American Association of Airport Executives this week blasted U.S. airlines for their ”staggering disconnect” in continuing to oppose an increase in the passenger facility charges that Congress allows airports to collect for infrastructure improvements, while at the same time hauling in record passenger fees for themselves.

Airports also get money from the Airport and Airway Trust Fund, which is funded by the 7.5 percent excise tax on air fares. But AAAE noted that since 2008, the airline tactic of separating out baggage fees from ticket prices has cost that fund almost $2 billion in lost revenue.

Readers: Are you seeing an improved passenger experience as airlines wallow in record profits? What would you most like to see them spend money on that might make your life easier?

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Air fares are down. But are passengers paying less? (Image: Jim Glab)

Domestic airline fares have been trending downward for the past 15 years or so, according to government statistics. As a matter of fact, fares are as cheap now as they were five years ago. And adjusted for inflation, they are down by 20% since 1995.

But at the same time, U.S. airlines have been reporting steadily higher profits in recent years. How can this be?

The latest report from the Bureau of Transportation Statistics (BTS) says that the average domestic air fare in the fourth quarter of 2015 fell by 8.3 percent from the same quarter a year earlier, from $396 to $363.

Over the longer term, the decline is even more substantial. According to BTS, the average fourth quarter domestic air fare, adjusted for inflation, fell by 18.2 percent from 1995 to 2015.

For the full year 2015, BTS said, the average fare fell by 3.8 percent from 2014, to $377 – its lowest level since 2010. Adjusted for inflation, the 2015 average fare was 19.2 percent less than the record annual high of $467, recorded in 2000.

So why are the airlines swimming in black ink these days? A big part of it, of course, is the reduced operating cost they enjoy thanks to the precipitous decline in oil prices over the past couple of years. And another big part of it is the industry’s eager embrace of all kinds of ancillary fees that passengers didn’t have to pay 20 years ago. For example, BTS data shows that Delta, American/US Airways and United each took in more than $600 million in those onerous change and cancellation fees in the first three quarters of 2015.

Twenty years ago, BTS said, U.S. airlines collected 87.6 percent of their total revenues from passenger fares. By the third quarter of 2015 (the latest data available), that figure had dropped to 75 percent.

A Southwest Airlines 738 in new livery takes of from Midland, Texas (Photo: Felipe Garcia / Flickr)

Southwest: does not charge fees for changes (Photo: Felipe Garcia / Flickr)

The most recent report on airlines’ ancillary fees from IdeaWorks/CarTrawler, which came out last fall, estimated that airlines worldwide brought in almost $60 billion in non-airfare revenues, almost tripling their take from that source in just five years. And the major U.S. airlines accounted for more than 30 percent of the total.

For the typical major U.S. airline, a little more than half of ancillary revenues came from the sale of frequent flyer miles. Most of the rest came from baggage fees and “a la carte” fees charged to passengers for amenities and services that were largely included in the air fare several years ago, or didn’t exist back then (like in-flight Wi-Fi fees).

“The a la carte category grew to 20% due to more emphasis placed upon comfort-related services such as premium economy seating, buy-on-board food, and priority screening and boarding,” IdeaWorks said. Another 20 percent came from checked baggage fees.

So when the airlines boast that we are paying less in air fares these days, that’s technically true – but it doesn’t necessarily mean we are paying less for air travel.

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