Outlook for Airlines Somewhat Rosier

October 1, 2009
Michael Sheehan

Checked-baggage revenue has tripled in the past year, the Bloomberg Airline Index has beaten the S&P 500 2-to-1 since March lows, and airline execs say passengers aren't complaining that much about all the new for-fee services.

Airline passengers have a lot to complain about. In addition to long lines at security checkpoints, air travelers now face a barrage of fees for services that used to be free. Almost all airlines are now charging passengers a fee to check a second bag on the plane and many are charging for the first bag. Meals and snacks will probably cost you extra, and you’re likely to be jammed into a chockfull plane, as airlines cut capacity and the number of flights to save money.

The thing is, say airline executives, passengers haven’t complained all that much. The added revenue from checked baggage has tripled in the past year to almost $670 million and more passengers are flying as the recession begins to ease. All that has brightened the financial outlook for the airlines and has given airline stocks a shot in the arm. The Bloomberg Airline Index has beaten the S&P 500 by 2-to-1 since the March lows. Stock prices for companies like Delta and UAL have more than doubled since March, and AMR stock has risen threefold.

All that optimism doesn’t mean that airlines are going to start turning a profit anytime soon, say industry experts. The average fare per mile flown continues to fall, with a drop this year of 13%. Forecasts are for a slight improvement, which means losses in the coming months may not be as bad. Apart from an uptick in business over the holidays, however, industry observers see little chance of black ink on the airlines’ balance sheet before next Spring, when vacation travel kicks in.