BioInvestor

Airlines Will Profit No Matter What

Pretty sanguine article! I do like optimism, but I think it's unwarranted in this case.

If you go back and look at the aggregate profit of the industry from 1926, you'll see it runs at a loss. Take away the few billion dollars that Gordon Bethune so masterly squeezed out of the Feds after 9/11 and the situation is even worse. Heck, discount financials up to the Carter deregulation--I'll be generous and just look at aggregate profits for the past 30 years--awful! Ignore Southwest and a dire situation gets even worse. I guess if you include negative profits, then the title of the article has merit! :D

I agree that the price of oil, crude oil will sink. How, I don't know. I know it always happens. There's an underlying trend of higher oil prices, but I think we're in a strange period right now that's not likely to continue.

The big mystery to me is how come everyone associated with the airline industry is profitable except the actual airlines? Airports can be profitable if managed properly; Boeing has done well for the past few decades--granted, it's in a cyclical industry, but it is profitable. Catering companies, service companies, companies that offer training, the list goes on: companies that support the actual airlines are all, or can all be profitable, but the airline industry in aggregate is a money sink.

At least now capacity is being reduced; 10% is a major shift in the supply curve. I don't think it will make the industry profitable, but I fear in this era of tight credit, the first legacy into C11 won't come out--it's going to be hard to get financing. So, the strategy now seems to be to avoid Chapter 11--at least don't be the first that enters. On this trajectory, they'll all be in reorganization within 12 months.