In reporting the bankruptcy of American Airlines last night, Scott Pelley on CBS Evening News stated that the airline industry had lost $34 million dollars as a whole and I think he said since 1951. Date doesn’t matter as much as two other points. I question the amount of money…$34 million seem like an understatement or underestimate, I would think it would be more, especially since 1951. He also commented that the figure meant that the passenger airline industry has never made money. With that statement comes the question, since the Federal government subusidizes the ailrine industry and operates its traffic and terminal systems without demanding that the industry make money, why does that same government demand that Amtrak make money? Note, too, no governtment in th US looks for any kind of profit report from trucks and buses whose rights of way are all provided by every level of government.
Henry,
The reason is that airline stockholders and bankers absorb the airline operating losses but the government itself absorbs the passenger train operating losses.
Mac
Whether the airline industry has made money since the dawn of commercial aviation is a moot point. Whether an airline has made money long enough to provide a vital service is the key question. And whether individual airline companies attract enough private capital to continue operations. The same concept applies to railroads, bus lines, steam ship companies, retailers, etc.
Factor in all the failed enterprises and your likely to find that many lines of business, in the aggregate, have been failures. Yet out of the dust heap will be a few very successful enterprises. Over the long run, if the criterial used by CBS was applied to the business world, one could say for the most part that all industries, including the railroad industry, have never made any money. For example, over 50 per cent of the start-up businesses in the U.S. fail within five years and more than 70 per cent are gone after 10 years. Failure? Not for the ones that got it right! Bad news for the majority that got it wrong. &n
Yes. BUt it doesn’t make sense does it? The Government…er us…is the stockholder/investor. Plus, investors are investing to make money, not abosrb losses. So you have given the reason but not the why.
Oh, I have no answsers…and I think everybody has opinions with no answers. I just put this out to see what is said.
MAC: I have to disagree very sharply. I have been thru 4 bankruptcys of various companys and the looses when a bankruptcy occurs are spread out to many persons.
1. The employees – may loose their last paycheck, unpaid insurance claims, lost retirement, unused vacation time, sick leave; have to purchase trip home if away, etc.
2. US government and foreign governments. Unpaid airway and navigation fees, violation fines, licensing fees, other national and local assestments. As well as lost business taxes from the below listed. Fuel taxes, passenger airport fees
3. State and local governments airport authorities – Landing fees, gate fees, non needed gate rentals ( usually on long term leasse ); extreme examples Saint louis airport authority, Raleigh airport, Nashville , etc . As well as lost taxes to below companies. fuel taxes, passenger airport fees.
4. Airplane owners who loose their guaranteeeded long term leases to an airline and may not be able to lease aircraft to anyone else. Owners cannot reclaim aircraft for at least 60 days and may not be able to get any rental income during that non-reclaim period.
5. Banks and other financial institutions – Loss of interest income and maybe some or all principal of loans.
6. Various vendors – especially fuel and catering but anyone who has provided services to an airline.
7. Aircraft manufacturers, engine builders ( P&W, GE, Rolls Royce ) –
MAC: one I forgot.
12. The sale of business losses by bankruptcy court to another company that then can claim this loss on the buyer’s federal business tax returns and maybe state returns. However in certain circumstances the bankrupt company can retain those losses after coming out of bankruptcy.
So Sam and Blue Streak, another question arises. If every venture is going to end at some point and that it will never make money in the long run, why do anything?
Henry:
I watched the same news.
You HAD to know that posting that would be like dumping a bucket of chum in the water, didn’t you? lol
That, or the flinging of a substance a whirling blades!
No !!! Not all ventures just airlines and transportation companies in general. Latest figures from CBS stated airlines net lost a total of $11B + since 1961. Taking in all the lost ancillary taxes I wonder how much subsidizing of airlines actually occurrs ?? This not counting all the money going to Boeing , McDonald, Douglas, Lockheed ??
To use an old saying. If you want to loose money fast buy an airline.
On that statement I would like to cite two exceptions. That would be FED EX and UPS mainly because they are an integrated transportation system.
Also so far Southwest Airlines seems to have advoided other airline problems by being well run but it only takes one mistake to eliminate 100 good ideas.
In part for the love of the game! And in part because some investors in the airlines have realized a reasonable return on their investment. The key to investing is to know when to fold them. It is a long term proposition. But not necessarily in one business or one industry. Diversity is the key.
I have been tracking the key financial results for the nation’s major carriers for the last five years. Clearly, this is not since the beginning of the industry or since de-regulation. However, the results are not as bad as the news media would have us believe. This is especially true if one backs out the losses incurred by American, which tried to row against the tide, i.e. it was not able to renegotiate its labor contracts whilst is major competitors were able to do so through bankruptcy, and the huge one time loss incurred by Delta as a result of its merger with Northwest.
From FY07 through FY11 the major carriers had combined operating profits of $7.3 billion. However, because of restructuring charges, as well as the impact of the worst recession since the Great Depression, they had a combined loss (net income) of $486 million. The key number is operating profit. Net income usually includes non-cash items that can result in a loss over the short haul but do not threaten the financial viability of the entity. Of course, if a business does not turn the losses around, it will likely be toast.
In 2007 there were 23 carriers that were classified as major carriers, i.e. annual revenues in excess of $20 million. This year the number is 13. And some analysts believe that American will eventually merge with U.S. Air.
UPS and FED EX are not passenger airlines and not under discussion. CBS report said $34 billion total lost by all passenger airlines and that no airline ever made money.
henry6: Thanks for a great post. Someday, someone will uncover how that shell game worked all these years.
Where did CBS gets its numbers?
In October I watched the same news program. It contained a report regarding the layoff of 300,000 teachers since the start of the recession. It included the obligatory child crying over the loss of a favorite teacher, traveling a half mile further to his new school, and sitting in a larger class. Wow, I thought, it sounds pretty bad. Then I looked into it.
It turns out that there are more than 4.3 million primary and secondary school teachers in the United States. Moreover, according to t
So what are you saying? That the railroads never went through bankruptcy? Or were built without government subsidies? Or the industry has not consolidated to meeting changing conditions?
If you have verifiable counter points, why don’t you offer them up?
Trying to make money hauling human beings is a tough go, which is why most airlines outside the United States – not just railroads – are nationalized. Trying to make money hauling human beings without the help of significant freight revenue, as the airlines must, is even tougher. Through speed – better utilization of equipment and crew – the airlines do better than railroads at the passenger trade, but it is still a tough, tough proposition.
I and, I know, others on this forum own railroad stock. Is there a soul within the sound of my voice who has a penny invested in airlines?
That used to be the case. Today, most of the nationalized airlines have been privatized, at least in part, or market driven discount airlines have popped up to compete with them. Easy Jet, Ryan Air, Air Asia, etc. are examples of free market start-ups in Europe and Asia that are beating the nationalized airlines, which like American are saddled with unworkable labor contracts and questionable management practices.
Qantas has been largely privatized. So too has Air Canada, Air France, etc. And a new government in New Zealand has put a significant portion of Air New Zealand up for privatization.
There is good reason why most of the nationalized airlines have been privatized. Even the most enthusiastic statist governments have come to realize that government is not very good at running commercial enterprises. Hopefully, this country, which some see as the epitome of free enterprise, would follow suit by privatizing intercity passenger rail. Alas, it won’t happen. Too many vested interests in the status quo.
If you are invested in a broad market index fund, e.g. S&P500, Total Market, etc., your fund probably holds Southwest Airlines. It also may have United, Delta, Jet Blue, etc. Moreover, if you are retired with a legacy pension, your pension fund probably holds Southwe
Henry, you could ask the same question of life itself – in which the best we can hope for, with Kenny Rogers’ gambler, is to break even. Which doesn’t mean life isn’t worthwhile – or individual business ventures within an industry that, over the long haul, loses money or eventually dies.
Right, Sam, but you know what I mean. Passive investments aside – anyone on here have airlines in his portfolio?
After reading several articles, it seems clear that AA is simply using chapter 11 (as most of the other legacy airlines did earlier) to reduce labor costs and dump the pensions. They have a current cash reserve of ~$4 bil.