ECONOMIC SNAPSHOT | AVIATION

Fuel a drag on airline profits

By TERRY MAXON
Airline Writer tmaxon@dallasnews.com

By TROY OXFORD
Staff Artist toxford@dallasnews.com

There are many reasons why most major carriers led for bankruptcy protection during the past decade. The terrorist hijackings of Sept. 11, 2001, drove away passengers and hurt the economy. The recession toward the end of the decade also took away revenue and passengers. But more than anything, rising fuel expenses drained tens of billions of dollars away from the bottom line.
1,500%

Major cost Change in fuel cost and usage

The U.S. airline industry burned 19.76 billion gallons of jet fuel in 1999, the most in the industrys history. Since then, the industrys usage has declined, with 2012s fuel usage down 19 percent from 1999. Even as usage declined, spending on jet fuel has soared, jumping from $10.5 billion in 1999 to $47.3 billion in 2012. It peaked at $55 billion in 2008. Back in 1999, only 10, 11 or 12 cents of every $1 of operating expense was spent on jet fuel. By 2012, fuel had become the biggest expense for almost all U.S. airlines. American
10.3% (1999) 35.2% (2012) 11.3% 29.4% 12.3% 37.2% 10.3% 35.4% 9.1% 26.9%

1,200%

Delta
900%

Southwest Fuel cost United

600%

US Airways

Heightened efficiency
300%

Fuel usage

As airlines replaced older aircraft with more efcient models, theyve been able to reduce their unit fuel usage. Number of available seat miles own per gallon used (one seat own one mile = one available seat mile)
10

0 1977

80

90

00

American

54.1 (1999) 63.3 (2012) 51.2 65.2 55.0 69.4 56.1 66.1 54.7 67.3

Profits suffer
Fuel wasnt the only factor for the airlines problems, particularly in the period after the Sept. 11, 2001, attacks and during the recession. But as airlines adjusted to nonfuel shocks, fuel prices climbed again, and industry prots suffered as a result.

NET INCOME FOR U.S. AIRLINES

$20 billion $10 0 $-10 $-20 $-30 00 02 04 06 08 10 12

Delta

Southwest

United

US Airways

SOURCES: U.S. Bureau of Transportation Statistics; the airlines; Dallas Morning News research

The bottom line

Contrary to what politicians want the public to believe, airlines are publicly traded corporations and have a duciary responsibility to be protable. Unfortunately, the traveling public does not understand how much fuel airlines consume and how expensive it has become to operate. Since year 2000, ination increased by 33 percent. Over this same time period, the average air fare per mile for all major U.S. airlines increased by only 9 percent. Fuel prices have been perhaps the primary driver of the airline ight reductions weve seen domestically over the last six years. In the current environment of high and volatile fuel prices, airlines have cut marginally protable ights and consolidated service at their core hubs. This has been a painful process for the nations smaller airports, many of which have seen ight options fall and average fares rise simultaneously. For most airlines, fuel costs are now a bigger part of their operating expenses than labor expenses compared with 2000. To their workers regret, airlines had to slash expenses from the labor side because the carriers could do little to hold down the price of jet fuel. We can blame many things for the bankruptcies, failures, mergers and union concessions since 2000. But Id put fuel expenses at the top of the list.

Robert Herbst, president, AirlineFinancials.com and retired airline pilot

Michael D. Wittman, research assistant, Massachusetts Institute of Technology, International Center for Air Transportation

Terry Maxon, airline writer, The Dallas Morning News