As US carriers report record earnings during the first quarter, some analysts are cautioning that the windfalls, in good measure due to the lapse of the 10 per cent ticket tax at the start of this year, are disguising a rise in unit costs.
On one of the rare occasions that government inefficiency has benefited airlines, President Bill Clinton vetoed the Republican-backed budget, which included the renewal of the ticket tax last December. Since then, no one has been willing to bring up the notion of reinstating the 10 per cent charge and probably won't until after the US presidential election in November. The tax could result in an industry-wide annual benefit of up to $5 billion.
Though some carriers have passed on the savings in the form of lower fares, by May most US airlines had bumped fares back up to the prices charged before expiry of the tax. With notable exceptions, such as USAir, US airlines are making net profits that seem disproportionate to demand.
Take Continental Airlines. Even with severe winter storms in January, a 9 per cent reduction in capacity and a fuel bill that jumped 17 per cent (industry-wide), the airline's first quarter passenger revenues rose 11 per cent, to $1.4 billion. The airline made no mention of ticket tax benefits in its explanation of the results.
One high-level industry executive believes that roughly half of the airlines' net gains in the first quarter resulted from the US government's lax fiscal policies. Analysts believe the revenue boost will continue through to the presidential election season, at least.
But profits are still eluding some carriers, and worse, the ticket tax lapse appears to be distracting management from its eternal vigil over unit costs. 'It has clearly helped,' says an executive at a low-fare carrier. 'But just because you have a windfall on the revenue side doesn't mean you can relax on the cost side.'
Costs do appear to be inching up. While Delta Air Lines has maintained its cost cutting programme (March quarter unit costs dropped 3 per cent), Continental's unit costs were up 13 per cent. And at USAir, still the industry's highest cost carrier, cost per available seat mile jumped 15.6 per cent.
Mead Jennings
Source: Airline Business
