Business
2:43 pm
Wed June 6, 2012

Good Times For Airlines, So Where Are The Deals?

Originally published on Wed June 6, 2012 5:29 pm

The rest of the economy may not be doing great, but airlines are expecting a banner year. Profitability is up and fuel prices are declining, but that's not necessarily great news for consumers.

When Robert Herbst, a former pilot and industry consultant for many years, says the skies are blue, it sounds pretty convincing. And from Herbst's projections, this may be a historic year for the airline industry.

Airlines are better at playing the supply-and-demand game to their advantage by consolidating and becoming more efficient, Herbst said. Flights are down in the past decade, which helps fill empty seats and raise ticket prices.

"Having the airlines profitable, I think, is much better for the consumer in the long run than it is to have these constant stream of airlines going in and out of business," he said.

Airlines run on tight profit margins of about 3 percent. Herbst said higher margins may mean companies will start investing in customer service again.

However, passengers may not see cheaper fares or fewer fees.

"Consumers are asking, 'Hey, oil prices have gone down 20 bucks in the last few weeks. Am I going to see cheaper ticket prices this summer?' The answer is no," said Rick Seaney, co-founder of travel site FareCompare.com.

In fact, Seaney said, most of the airlines that tried to hedge against rising fuel costs lost money on those bets as oil prices fell sharply.

And anyway, airlines are trying to raise — not cut — prices. Companies have boosted prices nearly 10 times in the last year, and fares on nonstop flights are increasingly more expensive.

"It's not that easy to get a deal," Seaney said. "I like to call it, sort of, this summer's like getting a better bad deal."

But he said with many airlines flying more efficient, newer planes, there are some customer-service benefits. More flights are arriving on time with fewer lost bags.

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Transcript

ROBERT SIEGEL, HOST:

From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

AUDIE CORNISH, HOST:

And I'm Audie Cornish. Amid all the sputtering, popping and clanking of the U.S. economy these days, some businesses are still gliding along smoothly - among them, the airlines. Fuel prices are declining, and profits are up. In this part of the program, we'll get a picture of the airline industry. In a moment, we'll hear from Delta Air Line CEO Richard Anderson about his business model and about the industry competition. First, NPR's Yuki Noguchi tells us why airlines are doing well and why that's not necessarily great news for consumers.

YUKI NOGUCHI, BYLINE: Robert Herbst has worked as a pilot, then as an industry consultant for many years. So when he says the skies are blue, it sounds pretty convincing.

ROBERT HERBST: Well, my projections show this will be one of the best years ever in the history of the industry.

NOGUCHI: Herbst says the industry has consolidated, creating more efficiency, and airlines are now better at playing the supply-and-demand game to their advantage.

HERBST: The airlines have finally seemed to figure it out now. They need to adjust capacity to a low enough point that there's enough passenger demand that pays a high enough price to be profitable.

NOGUCHI: Herbst says the number of flights is down from a decade ago, which helps fill empty seats and push ticket prices up. That may not seem like a consumer-friendly trend. But Herbst says that's not really the case.

HERBST: Having the airlines profitable, I think, is much better for the consumer in the long run than it is to have this constant stream of airlines going in and out of business.

NOGUCHI: Airlines run on extremely tight profit margins of about 3 percent. Herbst says higher margins might even mean the companies start investing in customer service again. But before you get too excited about what that means, it likely won't mean fewer fees or cheaper fares. Rick Seaney is co-founder of the travel site FareCompare.

RICK SEANEY: Consumers are asking: Hey, oil prices have gone down 20 bucks in the last few weeks. Am I going to see cheaper ticket prices this summer? The answer is no.

NOGUCHI: In fact, Seaney says, most of the airlines that tried to hedge against rising fuel costs lost money on those bets as oil prices fell sharply. And anyway, airlines are trying to raise, not cut, prices. In the last year, they've raised prices nearly 10 times. Seaney says fares on nonstop flights in particular have gotten a lot more expensive.

SEANEY: It's not that easy to get a deal. I like to call it sort of this summer is like getting a better bad deal.

NOGUCHI: But he says with many airlines flying more efficient, newer planes, there are some customer-service benefits. Flights are arriving more on time with fewer lost bags. Yuki Noguchi, NPR News, Washington. Transcript provided by NPR, Copyright NPR.

Related program: