How Did Airlines Do in 2008?

Over the next few weeks airlines will publish their Q4 and 2008 annual financial reports. Significant losses for the year will be common but with a great sigh of relief as the year ended considerably more positive than the mid-year predictions.

My top three most significant events affecting the airline industry in 2008 were:

• The price of jet fuel - 2008 started with jet fuel costing approximately $2.70/gallon increasing to a historical high of over $4.25/gallon by mid-July followed by a rapid decrease ending the year at close to $1.35/gallon. (Note: The spot price of jet fuel has been above $1.50/gallon since early 2005).
• Ala carte pricing - In an effort to make up for some of the large cost increase from fuel, most airlines created a new source for revenue. In addition to a fuel surcharge, it is now common to pay for service and amenities that not long ago came with the price of your airline ticket. Checking baggage, on board food & beverages, booking/changing your ticket through airline reservations is now added to the cost of your flight with most airlines.
• The on again off again marriage of Delta (DAL) and Northwest Airlines - The 3^rd and 5^th largest airlines (as measured by revenues) finally made it to the altar and officially merged in October. Delta is now the world’s largest airline, moving American (AMR) to the number two ranking.

Honorable mention for importance to the airline industry in 2008 would include major capacity cuts, historically high air fares, fuel hedging strategies and the failure of several smaller US and International carriers.

Below are my updated revenue/income estimates: The airlines below carry just over 75% of the US domestic capacity.

Detailed cost/revenue breakdowns can be found at AirlineFinancials.com.

Looking forward into 2009, the three issues I see having the most affect on the airline industry will be:

• Labor/contract issues,
• Fuel cost instability, and
• Consumer demand.

Disclosure: At the time of this writing, the author or and family members held long and derivative positions in AMR.

Comments

[bosun.j:]

All the top management of US based airlines need to get on a planes of Asian carriers like Singapore, Emirates and Qatar to see what they need to bring their greyhound bus experience up to.

Jan 09 09:31 AM

[User 334222:]

Ask the employees of Qatar how they like their job under a pseudo dictator.

Jan 09 10:14 AM

[bosun.j:]

A friend of mine is a pilot for them and he loves working there. I've been a passenger several times form SE Asia to Europe and will never fly a western carrier there ever again.

Jan 09 10:32 AM

[flyingriver:]

Well, when you cheap Americans who want everything for nothing are willing to pay the same airfare that we pay in Asia, then maybe the U.S. carriers will raise the service. You got what you asked for, "cheap air travel", now stop complaining!!!

Jan 09 02:31 PM

[bosun.j:]

Qatar Airlines from BKK to MAD $691 excellent aircraft, service, amenities and attractive attentive staff. Lufthansa BKK to MAD $994 old threadbare aircraft, crappy food, crappy amenities and huge angry Teutonic staff..

$303 less on Qatar and better terminal to change planes in. Life is good!


On Jan 09 02:31 PM flyingriver wrote:

> Well, when you cheap Americans who want everything for nothing are
> willing to pay the same airfare that we pay in Asia, then maybe the
> U.S. carriers will raise the service. You got what you asked for,
> "cheap air travel", now stop complaining!!!

Jan 10 05:03 AM

[Urbane Gori...:]

flyingriver.... Having traveled extensively, I have to agree with the above comments. American airlines really are the KMarts of the air. Give me either Lufthansa, which calssy and is competitive pricewise, or put me on a South American puddle-jumper so I can live the travel experience... Chickens, kids and chiles...

jegan ;-)

Jan 10 06:50 PM

[AirbusPilot:]

You missed one forecast...look for the demise of United Airlines in late 2009, or early 2010.

Jan 11 03:55 PM

[Kunst:]

The baggage surcharges are so stupid. Put it in the price of the ticket if you have to. Charging extra for the first bag just pisses off your customers.

Jan 11 04:43 PM

[Robert Herbst:]

In order to recognize the different methods airlines used to account for fuel hedging derivatives Q1-Q3, I am making the following are updates to the data table above:

Year 2008 estimates - (in millions)

Delta .. Revenue = $34,860 Net loss = ($462)

United .. Net loss = ($1,470)

Continental .. Net loss = ($409)

Southwest .. Net profit = $314

US Airways .. Net loss = ($805)


Total 2008 Revenue (estimate) = $121,099
Total 2008 Net loss (estimate) = ($3,972)

----------------------...

Q4 2008 updated estimates (in millions)

Delta .. Net loss = ($299)

United .. Net loss = ($530)

Continental .. Net loss = ($181)

Southwest .. Net profit = $16

Total Q4 Net loss (estimate) = ($1,370)


Regards

Robert Herbst
AirlineFinancials.com

Jan 13 12:02 PM

[stoehrcov:]

I agree the carriers listed are in the top ten in the world for service and having the profit to order the newest planes. Newer planes burn less fuel and have other benefits that boost profit.

The major problem with US airlines are the base employees not management. We meet them first and their approach to the passengers, yes paying ones is terrible. OK, benefits are down so are raises. However have the carries listed above had a 9/11 to cope with. Right I feel most people when they fly, pick the lowest fare not brand loyality. I do not care if it is United or American. The cost is the factor. Flight Attendants and other first line employees have to do the right thing. Care about your company or it is your job and lost of benefits.

On Jan 09 09:31 AM bosun.j wrote:

> All the top management of US based airlines need to get on a planes
> of Asian carriers like Singapore, Emirates and Qatar to see what
> they need to bring their greyhound bus experience up to.

Jan 15 03:55 PM

[lyon:]

i heard barrack obama only likes to fly on continental

Jan 16 01:56 PM