3 Horrible Facts About the Airline Industry

CHARLOTTE, N.C. ( TheStreet) -- Things are so bad for the airline industry that even good weather causes problems.

In February, mild weather enabled several carriers to post extremely high completion rates. JetBlue ( JBLU) and US Airways ( LCC), for instance, completed 99.8% and 99.7%, respectively, of their scheduled flights.
At any airline, the principal pursuit of most employees is to provide on-time operations. At US Airways last year, on-time performance was spectacular. Just not as spectacular as the rise in oil prices.

Their reward? Because more flights mean less revenue than expected for each flight operated, the carriers failed to meet expectations for revenue per available seat mile, an industry metric that measures the amount of revenue associated with each seat flown one mile.

But isn't that always the way in this cursed industry, which has been unprofitable for investors since the days of the Wright brothers? For all of its efforts to restructure, U.S. airlines squeezed out marginal profits last year and in 2010, after losing $50 billion in the previous decade.

Yes, the dramatic reshaping of the industry, which now charges fees for services and restrains capacity, was long needed. No, this sector is not fixed. Last year, U.S. airlines made just $390 million -- less than half a penny per dollar of revenue.

Three events this month have underscored the deep-seated problems of an industry whose fate is almost entirely dependent on external factors:

Airline profits are slaves to oil prices
On March 14, US Airways CEO Doug Parker sent an ironic letter to employees.

"We did everything right last year: record revenue performance, seven first-place finishes in the Department of Transportation rankings and we kept our costs competitive," Parker said. "However, the reality of this business is we made less in profit in 2011 because the price of fuel was $1.2 billion higher than it was in 2010; therefore our profit-sharing checks are smaller."

At any airline, the principal pursuit of most employees is to provide on-time operations. At US Airways last year, on-time performance was spectacular. Just not as spectacular as the rise in oil prices.

Even good weather is bad
Everyone knows bad weather diminishes airline operational performance, but few realized good weather can diminish financial performance.

At the recent JPMorgan ( JPM) transportation conference, executives from JetBlue, US Airways and Southwest ( LUV) all mentioned that February's high completion factors led to lower revenue per available seat mile.

At JetBlue, passenger RASM was 6%, a point below guidance. At US Airways, RASM was 7%, three points below guidance. US Airways President Scott Kirby says 1.5 points of the RASM decline was due to the high completion factor.

In the two days since the release of US Airways' February traffic report, which included the RASM number, the airline's shares fell 6%.

U.S. government policy is anti-airline
Also at the conference, United ( UAL) CEO Jeff Smisek discussed government policy toward airlines, which are among the country's most heavily taxed businesses. According to trade association Airlines for America, the cost of a $240 round-trip between Raleigh-Durham, N.C., and San Francisco soars to $300 because taxes add 25% to the fare.

A4A has said a national airline policy is needed to rationalize the regulatory and tax environment, force action on long-stalled improvement to an anachronistic air traffic control system and ensure U.S. airlines can compete globally. Smisek says Mideast carriers, such as Emirates Airlines, have the backing of their governments, which is "just the opposite of what we do here."

In the United Arab Emirates, it is safe to say the national airline is a widely respected symbol of the country's wealth and capabilities. In the U.S., by contrast, many residents, encouraged by negative media reports, suffer from anti-airline feelings -- which translate into antagonistic government policy.

"Having a national airline policy is important unless the policy is destroying airlines, which I believe is the policy here , because of the high level of taxation," Smisek says.

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here: Ted Reed

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