Surging expenses drive down US airlines’ 1H 2017 earnings
American Airlines Boeing 767-300
US airlines’ expenses grew at more than twice the rate of revenue in the 2017 first half, leading to a 23.3% year-over-year (YOY) decline in pre-tax profitability.
Airlines for America (A4A) reported that the nine publicly traded mainline US passenger airlines (Alaska Airlines/Virgin America, Allegiant Air, American Airlines, Delta Air Lines, Hawaiian Airlines, JetBlue Airways, Southwest Airlines, Spirit Airlines and United Airlines) earned a collective pre-tax profit of $9.2 billion in the first six months of 2017 compared to a pre-tax profit of $12 billion in the first half of 2016.
“The decline in profitability was attributable to expenses surging 9.1%, outpacing 4.2% growth in revenues,” A4A stated. Higher expenses included increases in fuel (plus 19.9% YOY), labor (plus 9.1%), maintenance (plus 8.3%), aircraft (plus 6.8%) and airport rents and landing fees (plus 3.1%).
Yield did increase, but just by 1.2% YOY.
The nine airlines’ pre-tax profit margin was 11.4% in the first half of 2017 compared to 15.5% in the January-June period in 2016. A4A chief economist John Heimlich pointed out that the 11.4% margin was well below Starbuck’s 19% profit margin in the 2017 first half.