Airline Industry Looking Good Again

The Financial Times reports an ironic twist for an industry that was in a tailspin just a few months ago:

The biggest US airlines stand to return to profitability next year, a stunning turnround for an industry that appeared to be heading toward the biggest crisis in its history a few months ago.

…as summer ended and Wall Street imploded, the menace was gone. Crude oil, which peaked at $147 in July, now trades below $70. The commodity’s rapid descent, coupled with the steps carriers took to reduce expenses, has turned the industry’s outlook for 2009 much brighter than many investors thought possible four months ago.

Even the worst economic slowdowns on record have cut revenue by no more than 1.2 per cent, Northwest Airlines said last month. For a large US carrier such as Northwest, that is about $150m in lost revenue a year. Compared with the savings those same airlines will realise from the drop in fuel – more than $1bn annually – the slowdown looks tame.

“We’ve got ourselves well-positioned to navigate through this,” Doug Parker, chief executive of US Airways, told the Financial Times. “The run-up in oil forced the industry to restructure around a much different world.”

Translation: They’re lucky oil prices went down again. And charging for baggage seems to work. This was a narrow escape for the airlines, which struck a balance at a crucial point. One more creative cost-cutting measure (listing aisle and window seats as “Economy Silver” and marking them up $50, for example) and they might have alienated a large customer segment for good.

Nonetheless, it’s refreshing to hear that restructuring still does work, and that at least one major industry is looking alright.

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