Airlines: When is Profit Enough?

As passengers, we really do want airlines to be profitable. In my 25+ years of travel, I have survived airline failures, strikes, bankruptcies, mergers, takeovers, consolidations, and wild up/down swings in earnings. Consistent profitability is good, but from the passenger side, the trend is not our friend.

You hear this all the time from the airlines: “We appreciate your loyalty.”

But do airlines really appreciate our loyalty? Delta Air Lines CEO Richard Anderson received over 40% increase in compensation this year, understandably due to the high profitability and increase in stock price of the carrier. Stockholders are doing very well and some of this profitability found its way into employee 401(k) accounts, well deserved since they have taken extreme financial hits in recent years. And to be fair, the airline has invested heavily in aircraft enhancements, airports, and updating their SkyClub lounges.

It is well known that Delta and US Air offer very limited low mileage award tickets. It has been this way for years but notice something else – both of these airlines are quite profitable now. Better award travel is usually available on United Airlines but they continue experiencing extreme losses. American Airlines also has more award availability but they are still in the midst of bankruptcy and merger. It begs the question; Is it necessary for airlines to limit their award seats to become profitable, and is it just a matter of time before United and American follow suit?

So how have loyal frequent fliers fared during this profitable period?  Despite our appreciated ‘loyalty’ to the airlines, virtually all elite levels have seen reductions in value. We look at things like upgrades as having value but it appears for many, there are simply fewer seats available. Delta, for example, has increased their SkyClub lounge fees while at the same time reducing their choices for spirits included in the price. Also, they have reduced the number of qualifying miles earned with partner alliance members as well as raising the bar for earning miles on their own planes. And all the legacy airlines have increased their change fees to $200, a whopping charge that hits frequent business travelers the hardest.

Not singling out Delta here, only noting that they went through recent bankruptcy/merger before the others and is using that advantage to show their competitors what it takes to be profitable. Think of this as a portrait of the future for all frequent flier programs. Sadly, all frequent fliers – especially the elites – will continue to see further reductions in value.

That is why I ask the question: How much profit is enough for airlines, knowing that these earnings come off the backs and through the wallets of their most frequent – loyal – fliers who are receiving less value while everyone else in the airline industry is receive more?

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Comments

  1. How can any company continue to prosper when your customers have such distain/dislike for you. It can’t work out in the long run.

  2. I should mention I spent $47k on Delta last year. To date $0.00, that option is available to anyone who is fed up.

  3. Huh? How can you talk about profit without discussing actual numbers and return on equity? What do you think is a fair ROE for an airline’s capital? 5%? 10%? 20%? Let’s establish what you think is a fair return (relative to capital required to operate) and then we can evaluate. Highlighting a CEO’s 40% increase in compensation without evaluating all the metrics of a business’s balance sheet is woefully incomplete.

  4. Hi Seth, think we agree about stand alone US award inventory, and that their partners are soon to disappear. Perhaps a future blog about using US miles now vs saving them for oneworld (?). And as you know, Q1 is historically the worst for airlines so this is a poor measure of annual performance. The blog was only intended to look at who is benefiting from the legacy profits, and who is not.

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