Airlines are passing fuel savings on to shareholders, not customers

[CHamilton]

Airlines are passing fuel savings on to shareholders, not customers

With all that extra money in their coffers, airlines appear focused on rewarding shareholders, but not customers.

Southwest has long focused on sending excess profits back to shareholders, and CEO Gary Kellysaid on CNBC Thursday that he thinks other airlines have copied that strategy.

 

[third rail 1200]

The carrier's financial obligation is to its owners, the stockholders. Obligation to passengers is safety. If it becomes all that profitable, some carrier will break ranks and lower price. Why would you expect something different?

 

[jis]

As far as I see, what they are doing is reducing debt as fast as they can. Some of the debt is being retired by issuing new shares, which reduces the value of shares. In order to balance that some are giving out more in dividends. Basically converting debt to equity when the going is good is a good thing. After they have set their financial houses in order, only then the question of reducing fares comes up specially when they are running at historically high load factors anyway at the current fares.

Some are also ordering new more efficient planes and retiring old gas guzzlers, which should be cheered by those concerned with the environment, i.e. investing in better infrastructure, which also is a good thing in the long run.

 

[railiner]

So they are finally, after years of bleeding red ink, getting a decent return on their investment.

Now the question might be, when the fuel prices start rising again, (and you know they will, as sure as the sun will rise), will the airlines immediately raise fares, or perhaps absorb some of the added cost?

Pardon me.....silly question.....

 

[Anderson]

So they are finally, after years of bleeding red ink, getting a decent return on their investment.

Now the question might be, when the fuel prices start rising again, (and you know they will, as sure as the sun will rise), will the airlines immediately raise fares, or perhaps absorb some of the added cost?

Pardon me.....silly question.....

If only it were that simple. After all, there were almost innumerable failed fare hikes over the last decade or so.

 

[railiner]

True, but they also had excess capacity then. They've learned to cut that....

 

[jis]

The reason that they are not going to return anything to the customers in terms of reduced fare is the same as why Amtrak will not reduce fares either. It is real simple actually. Amtrak being essentially a monopoly of course does not face any prospect of fare increases having to be rolled back due to competition with another carrier per say.until they start hitting airline fare levels on corridors. LD fares to small town USA will inevitably remain much less than any airline possibility, and rightly so. Somehow it appears that the chances of losing passengers to buses does not really appear to be a real threat in spite of huge fare differences in some cases, and of course none to not so huge in others.

 

[Anderson]

The reason that they are not going to return anything to the customers in terms of reduced fare is the same as why Amtrak will not reduce fares either. It is real simple actually. Amtrak being essentially a monopoly of course does not face any prospect of fare increases having to be rolled back due to competition with another carrier per say.until they start hitting airline fare levels on corridors. LD fares to small town USA will inevitably remain much less than any airline possibility, and rightly so. Somehow it appears that the chances of losing passengers to buses does not really appear to be a real threat in spite of huge fare differences in some cases, and of course none to not so huge in others.

Arguably because the bus service...well, let's just say buses*...in a lot of those places is negligible. Greyhound doesn't even operate a CHI-DEN service (it's split between Burlington Trailways and Black Hills Stage Lines) and it doesn't follow Amtrak's routing (there's overlap at Omaha/Lincoln, but the bus line runs via I-80/ex-RI/UP) so the service is dubious as a direct competitor.

*No disrespect to anyone, but I'm hard-pressed to consider a situation where I have to spend several days with little more than a stop at a McDonald's or Burger King for food and am otherwise largely stuck in a seat to be a "service".

 

[jis]

It all depends on what resources are available to you and how adventurous you want to be in the face of lack of resources. In my student days (read as days of relative poverty), I had no problem buying a one month Greyhound Ameripass, and set off cross country. I'd never imagine doing anything like that now.

 

[Bob Dylan]

Ditto to what jis said! I bought a Ameripass and went all over Canada and the US for $99 in my early poverty stricken days!( working as an entry level government employee/Grad Student)

 

[Devil's Advocate]

We've mentioned a lot of symptoms but in my view the root cause is the loss of several formerly independent airlines to consolidation. No matter how you look at it we lost a half dozen airlines in the last few years. Does anyone really think that was an accident? The fewer airlines there are the easier it is to hike fees and fares and that's exactly what we've seen.

All this talk about executives beholden to the stockholders is also rather curious. Anyone who owned airline stock in the last several years would know better than to pretend any of these airlines cares one iota about their shareholders. The moment the going gets tough the shares are dropped like a hot potato and the value plummets before becoming utterly worthless via commercial bankruptcy cleansing.

Some are also ordering new more efficient planes and retiring old gas guzzlers, which should be cheered by those concerned with the environment, i.e. investing in better infrastructure, which also is a good thing in the long run.

Why would someone truly concerned with the environment cheer on a change that by any logical measure isn't nearly large enough to have a material impact? Even if we ceased burning all fossil fuels today we've already banked a hundred years or more of rising temperatures thanks to thirty years of political indifference. The day for softening or delaying major problems has long since passed. Now it's time to sit back and enjoy the show. All models I know of point to weather becoming even more severe and less predictable than before. Humanity had three decades to fix the problem and in the end they did nothing of significance. Now it's time to let the laws of physics balance the books. The best part of this solution is that it requires absolutely no effort on the part of humanity. Which is all we were willing to expend anyhow.

 

[jis]

So your theory is therefore nothing should be done? Fine, we just have another thing in a long list of things that we disagree on C'est la vie.

 

[Devil's Advocate]

So your theory is therefore nothing should be done? Fine, we just have another thing in a long list of things that we disagree on C'est la vie.

The incentive to fix things now is tied to what people will experience a hundred years in the future.

We don't seem to know or care what will happen to the environment our immediate children will inherit so why would we care about someone we'll never meet a century later? You can't teach a problem like climate change to a culture that struggles to accept evolution. You can't make people who value individualism over everything else work together for a common good. You can't explain modern problems to someone who seeks all their wisdom from an ancient tome. My position isn't that nothing significant should be done so much that nothing significant will be done.

I've been following environmental research and policy for decades so I'm feeling pretty confident at this point. If the day ever comes that I'm wrong I'll happily admit it but I honestly don't see that day coming until long after I'm dead and turned into a poisonous chemical cocktail before being buried in the ground. In most of the world environmental activism is limited to minor and insignificant changes that will have little if any real impact in the grand scheme of things. Sorry for the bad news but on the positive side we won't be here to see most of the damage we've already set into motion.

 

[jis]

People however do understand clean water to drink and clean air to breathe. That is an environmental issue even if we completely ignore climate change. It is better to focus on what can be achieved than focus on hundreds of things which would be nice but is hard to get to, and based on that give up on everything. As they say, at the end we will all be dead. But that is no reason to stop trying to improve things slightly even, for now.

 

[Paulus]

We've mentioned a lot of symptoms but in my view the root cause is the loss of several formerly independent airlines to consolidation. No matter how you look at it we lost a half dozen airlines in the last few years. Does anyone really think that was an accident? The fewer airlines there are the easier it is to hike fees and fares and that's exactly what we've seen.

It's gotten a little bit more expensive to fly (16% since 2005 low in constant 2000 dollars), but it's still cheaper than flying in 2001 or earlier. As for it being an accident: Of course it isn't, the ability to raise fares to a business sustainable level is generally one of the major advantages of mergers. I do find it interesting that people will manage to complain both about any Federal subsidies to airlines as well as the airlines raising fares to a level that doesn't require subsidies.

 

[Devil's Advocate]

We've mentioned a lot of symptoms but in my view the root cause is the loss of several formerly independent airlines to consolidation. No matter how you look at it we lost a half dozen airlines in the last few years. Does anyone really think that was an accident? The fewer airlines there are the easier it is to hike fees and fares and that's exactly what we've seen.

It's gotten a little bit more expensive to fly (16% since 2005 low in constant 2000 dollars), but it's still cheaper than flying in 2001 or earlier. As for it being an accident: Of course it isn't, the ability to raise fares to a business sustainable level is generally one of the major advantages of mergers. I do find it interesting that people will manage to complain both about any Federal subsidies to airlines as well as the airlines raising fares to a level that doesn't require subsidies.

In the last decade my average airfare has doubled, both for domestic and international flights. Your own link seems to be showing a 35% increase during this time period so maybe my personal experience is unusual. In any case even your own source appears to show airfares exceeding the inflation rate by nearly 40% during that time. I guess thats just a "little bit" more expensive to you (and the airline industry) but to the folks I know thats a major increase.

 

[jis]

Same problem as for passenger rail. When fares start rising from a patently unsustainable level, they rise faster than inflation unless the government steps in by diverting the funding of some of the expenses to other sources than the farebox.

Edits: making corrections to the most helpful contributions from iPhone.