Why the Airlines are Bankrupt

A'A WHY THE AIRLINES america ARE BANKRUPT "The easiest way to become a millionaire is to start out a billionaire and go into the airline business." - RICHARD BRANSON, FOUNDER OF VIRGIN AMERICA You just spent $500 on holiday airfare, including baggage fees, change fees, and a fuel surcharge - yet all you got to eat on the flight was a tiny bag of peanuts. So how is it possible that America's largest airlines are losing money? In November, American Airlines filed for bankruptcy, joining the 20 other airlines that have filed for Chapter 11 protection in the last 10 years. Why are airlines hemorrhaging money? Let's find out: ADELTA HOW BAD IS IT? 1978 • • NOW Since deregulation in 1978, the airline industry has lost $60 billion BANKRUPTCY BANKRUPTCY BANKRUPTCY BANKRUPTCY BANKRUPTCY BANKRUPTCY BANKRUPTCY BANKRUPTCY BANKRUPTC BANKRUPTCY BANKRUPTCY BANERUPTCY BANKRUPTCY BANKRUPTCY BANKRUPTCY BANKRUPTCY BANKRUPTCY BANKRUPTCY BANKRUPTEY BANKRUPTCY BANKRUPTCY BANKRUPTCY BANKRUPTCY BANKRUPTCY BRNKRUPTCY BANKRUPTCY BANKRUPTCY BANKRUPTCY BANKRUPTCY BANKRUPTCY раккацртсY вамкауртсY ранквUPтсY BANKRUPTCY BANKRUPTCY BONKRUPTCT BANKRUPTCY BANKRUPTEY BONKRUPTEY BENKRUPTCY BANKRUPTCY BANKRUPTCY 46 airlines have filed for bankruptcy 11 11 A'A Major names: US Airways (twice), United, Air Canada, Northwest, Delta, Frontier, American PANAM 1927 - 1991 The world's largest airline for 64 years, Pan Am, no longer exists %24 2010 REVENUE: $100 BILLION + 2010 PROFITSS: $1.3 BILLION Revenue for the five largest American carriers (Delta, United, American, Southwest, US Airways) totaled over $100 billion for 2010 Profits only a combined $1.3 billion - a profit margin of just 1.3% Railroad industry profit margin: 15.7% - 12x the airline industry NOV. 2011 11 A'A American Airlines, world's 4th-largest carrier, filed for bankruptcy in November, 2011 Last major US carrier to do so 0000000 SOUTHWEST A'A Lost $471 million in 2010 – more than Southwest Airlines' total profit HOW DID IT HAPPEN? 1978 US government regulated the airline industry until 1978 AA "Legacy Carriers" (national, interstate airlines that existed before deregulation) dominated the industry Today, that list includes United, American, US Airways, Delta, Alaska, and Hawaiian Under regulation, had been unable to compete on price Instead, competed on services: larger seats, better meals, piano bars in-flight jetBlue Low-cost carriers (Southwest, JetBlue, AirTran) moved into the market Since then, fares have fallen by an inflation-adjusted 61% 1974: 1234-- 1234-56-7 $1442 12 321 ИИ1 LAX JFK- LAX TODAY: $268 Cheapest inflation-adjusted round trip flight from New York to Los Angeles in 1974: $1,442 Domestic market share Today: $268 increased from 7% to 26% in 2009 AA GRBITZ -$976 MILLION Travel websites (Expedia, Priceline, Orbitz, Travelocity) have cut into legacy airline earnings These websites now account for more than 4% of airline operating expenses Cost American Airlines $976 million in 2010 American Airlines attempted to boycott Orbitz.com in January 2011, went bankrupt in November O Expedia priceline ORBITZ travelocity Only Southwest Airlines operates without third-party websites O UNITED HOW HAVE LEGACY AIRLINES TRIED TO RECOVER? BANKRUPTCY BANKRUPTCY Legacy airlines had expensive Only way to renegotiate these labor agreements from contracts was to declare bankruptcy, fire employees, and rehire before deregulation Airline industry cut 30% of Legacy airlines still had 35% jobs, 7% of wages from higher costs/mile than 2001-2005 low-cost carriers in 2008 FEES Customers have paid $48 Greater than 10% of airline billion in fees since 2007 revenues now come from fees since 2007 Airlines lost a combined $23 billion in 2008 and 2009 LESS FLIGHTS Despite a 2.1% growth in Airline industry made $15.1 billion in passengers, US airlines cut profit for 2010 80,000 flights from 2009 to 2010 Following years of protective government regulation, US airlines were forced into the competitive economy in 1978. Since then, bankruptcy has haunted the industry's largest players. These "legacy airlines" seem to be returning to profitability, but only time will tell whether the industry will escape its chronic problems. 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