Just how profitable are the US carriers right now? United Airlines reported a record $1.3bn profit for 2Q 2015 ($1.2bn after special items), surpassing bellwether Delta‘s $1bn profit. And Southwest Airlines is also at the party, recording a $600mm profit for the quarter. That’s a lot of cash to play with, though the carriers all remain somewhat conservative in their plans. None announced major expansion or product improvements as part of their reports. Which is to say that the passengers are paying plenty but not necessarily getting much back in terms of product improvements.
United indicated that it would complete a previously announced $1bn stock buy-back program in Q4 2015 and initiate a further $3bn buy-back effort expected to complete over 2016/2017. Southwest announced a similar $500mm program to start imminently. Delta similarly has been buying back stock in massive volume; the carrier reports $925mm in buy-backs during the quarter. UPDATE: American Airlines reported $1.7bn in net income for the quarter and announced a $2bn stock buy-back program.
These efforts all increase shareholder value but do little to benefit the passengers or employees. Yes, there are profit sharing payouts which are great for employees. But that’s not the same as investing the billions in buy-back cash in those same employees. United still has labor groups which do not have an agreement to integrate post-merger and Delta pilots just rejected a contract which , among other things, changed the definitions of profit sharing for them to bonus on a smaller piece of the pie.
As for passengers, well, it seems the best they can hope for is more new planes. And new planes are generally great but there’s more to a comfortable ride than the age of the aircraft. Actually, a lot more. Things like personal space and in-flight product matter, too. Most of the new planes (and plenty of the old ones) are being retrofit to include more passengers in the same total space. That’s great for profits and cost control but rarely does it mean good news for the passengers on board. At the same time, the carriers are – generally speaking – improving the in-flight entertainment and connectivity options on board, so that’s a nice benefit, even if the goal is mostly distracting travelers from the pain rather than solving the problem.
Solid earnings are important for the airlines, and something they historically have not experienced. They’re all working on what to do with the cash they’re collecting and coming up with plans for saving, spending and playing. I suppose I just wish that more of the spending and playing money went into things which improved the travel experience rather than rewarding the bankers and executives (who take their bonus in stock and then spend the company money propping up the share value).
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