We're a little concerned that a lynch mob is getting ready to
string up the allegedly deregulated U.S. airline industry for
having made a profit. Congress is full of talk about doing
something about high air fares.
Small towns, business travelers, residents of hub cities and
vacationers all claim they're getting gypped.
Into this stew of hysteria we would like to inject a few facts.
It is true the U.S. airline industry made record profits last year.
Net income for the 12 majors came to $5 billion. And it is true
this was an all-time high.
But before we accuse these rapacious monopolists of having their
way with our pocketbooks, consider that the carriers reaped this
profit from an overall revenue base of $83.5 billion.
That means the best minds of commercial aviation in the world's
most lucrative market produced an operating profit margin of 9% or
net profit margin of 6%.
These are not the spoils of greed. Compared with the financial
performance of most other sectors of the American economy, they are
not even good returns. As an investor, you can do this in the bond
Southwest Airlines produced the highest operating profit margin
among the major U.S. airlines at 13.2%. In the pharmaceutical
industry, that would be the next best thing to bankruptcy.
The airlines did make a pile of money, but they did it by
cutting commissions to agents, by getting lucky that fuel prices
dropped and by not adding capacity.
To judge from the industry averages, there's not much evidence
that they did it by raising fares to unconscionable levels. The
U.S. airlines last year generated revenue at the rate of 12.94
cents per passenger mile, up from 12.84 in 1996. That translates
into an average fare hike of about 0.77%, hardly price gouging.
We don't deny that some passengers end up paying more than
others or more than they want. But this doesn't mean the government
should step in and tell the airlines what they "should" charge. We
tried that once before and it didn't work.
What works for smart consumers, as always, is shopping around,
planning your purchases and seeking the advice of a professional
agent when the going gets rough.