Airlines profitabillity

[Michael]

Can anyone explain the difference between these two?
If one can make such a large profit, then why should the tax payers have to bail out another airline for bad management?

Another quarter, another profit for Southwest​

The discount giant said today that its fourth-quarter earnings rose 54%, something that came despite an unexpected expense of $24 million in 2005 federal airport security fees due to a retroactive assessment by the Transportation Security Administration. For the quarter, the airline said it earned a net profit of $86 million (10 cents per share), with earnings driven higher by increased revenue and cost control efforts, The Associated Press reports. For the year, Southwest earned $548 million, or 67 cents per share. That compares with the airline’s 2004 net income of $313 million, or 38 cents per share. Southwest's 2005 profit marked the airline's 33rd consecutive annual profit.

AA's loss widens in 4th quarter, company loses $861M in 2005​

American Airlines lost $604 million ($3.49 per share) during the fourth quarter of 2005, up significantly from the $387 million ($2.40 per share) the company posted during the same period in 2004. AA’s 2005 fourth-quarter results included $191 million in special items. Without those items, AA would have posted a loss of $413 million ($2.39 per share). Analysts polled by Thomson Financial expected the company to report a loss of $2.50 per share. Their estimates typically exclude one-time items, according to The Associated Press. AA said it paid $433 million more for jet fuel in 2005 than it would have had prices held steady with the prior year. For the year, AA lost $861 million. CEO Gerard Arpey said the company is "dissatisfied with our financial results."

 

[gismo]

Can anyone explain the difference between these two?
If one can make such a large profit, then why should the tax payers have to bail out another airline for bad management?

I'm not saying the taxpayers should bail them out, but IMO the difference stems from being forced to switch from a regulated semi-monopoly environment to a totally competitive one. This may well have saved airline customers a bunch over the years since deregulation, but it clearly left the existing operators between a rock and bankruptcy. I doubt the best management team in the world could turn the majority of the legacy airlines around. There's just no way to make money in an environment where you have high union based pay scales, and competitors that are either blessed without that issue or are willing to sell at a loss. I honestly don't see a way around the ultimate failure of all the old time companies. Sad, given there was a time when airlines were considered economically bullet proof.

 

[James_Dean]

I would have to guess that management of fuel costs and labor costs have the largest impact. I've attached AMR and SWA 2004 annual reports.


Quoted from the SWA 2004 Annual Report.


"One of our greatest cost pressures is jet fuel, which is our second highest cost category after labor. Although market jet fuel prices were at record high levels during 2004, Southwest had the wisdom and foreshight to hedge approximately 80 to 85 percent of our fuel needs, which reduced our 2004 fuel and oil expense by $455 million. We are well-protected in 2005 with 85 percent of our anticipated fuel needs hedged at $26 per barrel of crude oil. We are also opportunistically building hedging positions for future years and are currently hedged 65 percent at $32 per barrel in 2006, over 45 percent at $31 per barrel in 2007, 30 percent at $33 ber barrel in 2008, and over 25 percent at $35 per barrel in 2009."


James Dean

 

[rpadula]

IQuoted from the SWA 2004 Annual Report.

"Although market jet fuel prices were at record high levels during 2004, Southwest had the wisdom and foreshight to hedge approximately 80 to 85 percent of our fuel needs, which reduced our 2004 fuel and oil expense by $455 million. We are well-protected in 2005 with 85 percent of our anticipated fuel needs hedged at $26 per barrel of crude oil. We are also opportunistically building hedging positions for future years and are currently hedged 65 percent at $32 per barrel in 2006, over 45 percent at $31 per barrel in 2007, 30 percent at $33 ber barrel in 2008, and over 25 percent at $35 per barrel in 2009."

It's sure hard to tell if it was "wisdom" or "blind dumb luck" from where I sit. I guess we'll find out around 2009. I'm still not buying any "LUV" though

Sad, given there was a time when airlines were considered economically bullet proof.

Didn't someone (Buffett maybe?) figure out that the airline industry hasn't netted any profit as a whole in its entire existence? It is a shame, though. Think of how much people and businesses have benefitted from all that mobility, and the airlines can't reliably turn a profit. Goes to show what a tough job it is, I suppose.


-Rich

 

[wsuffa]

It's sure hard to tell if it was "wisdom" or "blind dumb luck" from where I sit. I guess we'll find out around 2009. I'm still not buying any "LUV" though

Buffet owns a large chunk of Netjets. FYI.

My hedge is this: I own stock in both an oil company and one of the regional carriers that serves more than one main airline. They do move counter to each other, mostly.

 

[Richard]

Didn't someone (Buffett maybe?) figure out that the airline industry hasn't netted any profit as a whole in its entire existence? It is a shame, though. Think of how much people and businesses have benefitted from all that mobility, and the airlines can't reliably turn a profit. Goes to show what a tough job it is, I suppose.

-Rich

I would think that many industries would show red ink in that scenario. For every profitable business there would be multiple business' in the red. For every one really fabulously successful business there would be hundreds if not thousands of business' operating at a loss. Dept of Labor would have the numbers.

Profitability or lack thereof is not an indicator of how tough a job it is. Buffet himself is active in the industry. You better believe if he's involved it is in the black. It seems to me mgmt style is more of a factor. Maybe the 121 carriers had it all wrong from the gecko.

 

[Michael]

For every one really fabulously successful business there would be hundreds if not thousands of business' operating at a loss. Dept of Labor would have the numbers.

See, this is what i just dont get. At what point does loss not matter? As a business owner myself, I can say every dollar counts. If I ever get in the red, i am going to re-evaluate my situation. I wont just let a full year go by and continue with massive million dollar losses. everything should be shut down imediately if a dollar is lost. unless of course you are depending on a government bailout.....in that case, i think the more you lose, the more you gain (from the taxpayers).
i just dont get it. tell me why again we are bailing out these airlines when southwest can maintain a good profit? Lance pointed out the switch between old school and new school..but im sorry, this happens in every facet of the business world. If you dont make money you stop what your doing. this mentality of the government owes me has got to stop somewhere at some point.

 

[Richard]

See, this is what i just dont get. At what point does loss not matter? As a business owner myself, I can say every dollar counts. If I ever get in the red, i am going to re-evaluate my situation. I wont just let a full year go by and continue with massive million dollar losses. everything should be shut down imediately if a dollar is lost. unless of course you are depending on a government bailout.....in that case, i think the more you lose, the more you gain (from the taxpayers).
i just dont get it. tell me why again we are bailing out these airlines when southwest can maintain a good profit? Lance pointed out the switch between old school and new school..but im sorry, this happens in every facet of the business world. If you dont make money you stop what your doing. this mentality of the government owes me has got to stop somewhere at some point.

I thinkthe 121 industry is so convoluted no one will ever figure it out. The industry is part of the national infrastructure and probably protected under some Dept of Commerce statute lobbied by Juan Trippe. As such, the feds would need to ensure viability of the airlines.

We're not a socialist country (not yet) so a state ownedairline is not in the cards. But we do operate under a capitalist system which would allow any and all to hop on board. But there are probably obstacles to that too.

You are not part of any infrastructure except NANVTP (Nat'l Assoc of Non Volunteer Tax Payer) so the feds don't give squat what happens to you.

I have a close friend who owns a cabinet shop with 8 F/T, 2 P/T employees. He does great work and most of his work is by referral. He also has 6 kids and is the sole income for his family. Last year was the first year in 18 years in which he has shown a profit. His personal net worth is solid although would be considered modest. We talk about finances often so I know he has had some close shaves over the years but never was he close to closing the doors and never has he been bailed out by someone. His credit rating is stellar probably because he has never had a late payment on anything and he has no CC debt. He has been blessed.

 

[Michael]

sorry richard. i dont get it. Maybe i am different, i can see maybe a quarter losses, but not annual. i think maybe we need to reschool people before they are allowd a business liscence, so we dont have to bail them out. Oh yea i am also way agianst walefare. what did our ansesters do before that was in place?

 

[woodstock]

the big thing that comes to mind for me is that SWA has hedging contracts for fuel, which makes a huge difference - when they expire in X number of years things may change.

and I do think whether we like to pay out the nose in taxes or not - having healthy airlines are vital for this (and any) country. movement of commerce, movement of people. we may have cheaper tickets but we're all making it up through taxes. (instead of in the past where the actual passengers may have shouldered more of the burden through higher ticket prices).

in 1993 I remember spending about the same or even a little more for a plane ticket to London in August, than I'd pay right now. 13 years ago - and I paid more? just accounting for inflation that makes no sense...