The US airline industry has rebounded solidly, showing its best profit margins since 1999. With fuel prices dropping, the potential for even better airline financial performance appears on the horizon, positively impacting airline equities. Historically, there has always been either an exogenous factor, or competitive fare war, to bring high profits back to earth. Is today’s surge in profitability different, and is it sustainable? Let’s examine some trends, and examine some trends over the longer term. We begin with traffic.
Although the US economic recovery has been slow, it has not been keeping people away from traveling by air. Traffic is remarkably resilient, up over 21% between 1995 and 2013. Air travel has a relatively inelastic demand, which is why Congress loves taxing it. LCCs kept growing market share up to 2009, but since have appeared to level off a bit. Travelers do not like to pay higher fares unless forced to, but since 2009, network carriers have held stemmed the decline in market share a bit better than before. Network carriers have managed to keep LCCs at bay.
AirInsight is the boutique aerospace media and analysis team and part of AirInsight Group LLC.
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