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Airline Profit Woes Signal Worse Times Ahead for Flyers

SmarterTravel

At Monday’s meeting of the International Air Transport Association in Cape Town, the trade group’s chief, Tony Tyler, had good and bad news for the world’s airlines, and what amounts to overwhelmingly bad news for the airlines’ customers.

On the upside, the group has upgraded its 2013 profit forecast for the world’s airlines from $10.6 billion to $12.7 billion. That would be a 67 percent improvement on 2012’s $7.6 billion profit.

Part of the reason for the improved profitability: the airlines’ self-discipline in restraining their own growth. Combined with only minimal increases in capacity, this year’s total projected passengers will surpass three billion for the first time, bumping average load factors to a record 80.3 percent. Although that alignment of flight supply with traveler demand is great news for the airlines, it spells discomfort for the traveling public as empty middle seats become a relic of a previous era.

For the U.S. market, IATA is projecting only modest traffic growth, 1.7 percent. But with only 0.7 percent more seats to accommodate that increase in demand, load factors can only rise.

The cautionary aspect of IATA’s industry assessment concerns the airlines’ profit margins. On total revenues of $771 billion, the $12.7 billion in profit amounts to a margin of just 1.8 percent. That would be considered unacceptable in many industries, but is high by the airlines’ own standards.

According to Tyler: “This is a very tough business. The day-to-day challenges of keeping revenues ahead of costs remain monumental. Many airlines are struggling. On average airlines will earn about $4 for every passenger carried—less than the cost of a sandwich in most places.”

Fuller planes increase operating efficiency and can thereby help increase those margins somewhat. But it will take more, and Tyler also nods approvingly to the airlines’ increasing reliance on ancillary revenues, which now exceed 5 percent of total revenues: “It is clear that airlines have found new ways to add value to the travel experience and to shore-up the bottom line.”

No doubt those fees are indeed a boon to the bottom line. As far as adding value, however, many consumers would contend that the current fee-for-all adds nothing to the travel experience but confusion and aggravation.

Reader Reality Check

If fuller flights and more fees are the solution to the airlines’ profit woes, does that mean that even worse times are in store for flyers?

This article originally appeared on FrequentFlier.com.

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