Industry Reports First-Quarter Loss

Industry trade organization Airlines for America (A4A) says passengers can expect full flights this summer thanks in part to a record number of people traveling internationally and an improving economy. The good news for travelers is that airfares have not kept pace with the inflation rate, keeping air travel a relative bargain.

"Customers are benefiting from record airline operational performance and greater access to the global economy while fares continue to trail the price of other services," said A4A President and CEO Nicholas E. Calio (pictured). "The fact that travelers will take to the air this summer both domestically and in record numbers beyond our borders underscores the value airlines are delivering to customers."

In its annual summer forecast , A4A today predicted that from June through August, U.S. airlines will carry an average of 2.24 million travelers globally every day. Total passenger volumes remain 5 percent below the summer 2007 all-time high of 217.6 million. A4A also expects a record number of people to travel internationally. Of the 206.2 million total passengers expected to travel on U.S. airlines this summer, 26.8 million will be traveling on international flights. This estimate surpasses last summer's record of 26.3 million passengers flown on international flights. Domestically, 179.4 million passengers are expected to fly this summer, comparable to summer 2011.

The good news for travelers is that airfares have not kept pace with the inflation rate, which rose 31 percent since 2000. Over the same period, average domestic airfares, per the Department of Transportation, rose just 9 percent, or 15 percent including optional ancillary services – less than half the rate of U.S. inflation. Adjusted for inflation, average domestic airfares actually fell 16 percent over the period or 12 percent including ancillary services.

As noted in carrier first-quarter reports, airlines continue to be challenged with increased operating costs, notably higher energy expenses. For the first quarter, fuel expenditures for 10 reporting U.S. passenger airlines rose 19.1 percent from the same period in 2011. Thus far this year, the price of jet fuel is 7 percent higher than in the same period of 2011, when full-year jet-fuel prices reached an all-time high.

A4A Wednesday reported that the industry posted a first-quarter net loss of $1.73 billion (-5.2 percent net margin), which includes the results of 10 U.S. passenger airlines and represents a 74 percent deterioration from the net loss of $1 billion (-3.2 percent net margin) that these same carriers reported in the first quarter of 2011.

"Building from a solid operational foundation, the airline industry continues to make customer-service improvements and increase efficiency. With fuel at record-high levels, the financial loss suffered in the first quarter would have been substantially deeper if not for the significant proactive steps that the airlines have taken," said A4A Vice President and Chief Economist John Heimlich.

Operating revenue for these 10 airlines grew 8.2 percent but operating and nonoperating expenses increased 10.3 percent. Fuel costs jumped 19.1 percent compared with the first quarter of 2011. Fuel remained the industry's largest cost at one-third of operating expenses, up from 30 percent in 2011.

FMI: www.airlines.org