Airlines Still Live on the Edge, With First-Half Profit Margins of Just 2%
CHARLOTTE, N.C. (TheStreet) -- For all of its efforts to remake itself into a viable business that can legitimately attract investors, the airline industry remains inordinately dependent on outside events --- chiefly, for the moment, the price of fuel.
The industry was barely profitable in the first half of the year, with the top 10 carriers reporting a net profit of $1.6 billion, up from $1.2 billion during the same period a year earlier. Net profit margin rose to 2.1% from 1.6%. The group went from "razor-thin to paper-thin margins," said John Heimlich, economist for Airlines for America, the industry trade group.
But "a swing of 20 cents per gallon (in fuel costs) would have wiped out the profits," Heimlich told reporters during a media conference call on Thursday. Threateningly, since the end of the first half, fuel prices have risen by 26 cents.
"The industry is never fully insulated from shocks," Heimlich said. "But it is much better insulated now than it was in 2007. We had the one-two punch of fuel price shock and recession in 2008 (and) the industry talked about shock as a threat to its existence. Now it's a threat to earnings. That is a much better place."
Investors are aware of the industry's improvement, which has been based primarily on capacity discipline, achieved partially through consolidation, and the acceptance of ancillary fees. Moreover, airlines led by Alaska
Most airline shares are up significantly this year. Spirit
However, if the Justice Department succeeds in blocking the planned merger of US Airways and American