Page 9 - AAA SEPTEMBER - OCOTBER 2017 Online Magazine

COVER STORY AIR FARES

but needs more to bring its fleet age down
to an industry average of 10 years and that
takes solid profits. Airlines such as Delta and
United are only now announcing the phasing
out of their ageing 747 fleets in favour of
Boeing 777-300ERs and the A350. United has
193 aircraft on order and is deliberating on
another major buy – only made possible by
solid profits.
Another hot topic for consumer groups is
ancillary revenue. According to A4A, average
US domestic airfares have declined 7.37 per
cent from US$376.24 to US$348.49 in the
three years from 2014 to 2016 while ancillary
revenue has crept up by only 0.13 per cent
from US$22.87 per passenger to US$22.90.
The stark reality is that since de-regulation
in 1979, US airlines have made a cumulative
loss of US$5.6 billion, up to the third quarter
of 2016. According to the American Customer
Satisfaction Index, consumer satisfaction
with airlines in the US has climbed 10 points
to 75, excluding ULCCs. Other surveys have
satisfaction levels up in the 90s. In Australia,
the story is the same with Qantas achieving
a domestic satisfaction rating of 87 per cent
on mainline flights and Virgin Australia 79
per cent, according to Roy Morgan Research.
Naturally airlines such as Jetstar scored
lower at 68 per cent which is still high for a
LCC. The airline industry continues to be an
easy target for consumer groups because
the dynamics that drive it - high capital cost,
cutting edge technology and rock bottom
returns - are so complex and difficult to
understand by the wider public.
In the Final Analysis
a record margin of 5.1 per cent. While 2016 is work in restructuring and re-engineering the In any debate, the airline industry’s
the third consecutive year (and the third year business, the industry is also more resilient.” extraordinary record of reducing airfares
in the industry’s history) in which airlines will Certainly, the results have been more in relation to inflation and average weekly
make a return on invested capital (7.9 per bullish in North America, where the consumer earnings must not only be taken into
cent) that is above the weighted average groups have been most vocal, but US airlines consideration but must be the major platform
cost of capital (6.9 per cent), the future is are well behind the rest of the world in fleet of the discussion. Some practices such as the
softer. For 2017, IATA predicts a net profit re-equipment. According to IATA, the net add-ons are irritating but it certainly does not
of US$29.8 billion. Alexandre de Juniac, margin for the region’s carriers is expected to compare to going into a department store to
IATA’s Director General and CEO, wants the be the strongest in 2017 at 8.5 per cent, with buy some socks and coming away with a suit!
numbers to be put in perspective. “Record an average profit of US$19.58 per passenger. The truth is that consumers have choices
profits for airlines means earning more than However, the fleet age at Delta and United are and airfares are at their lowest level ever.
our cost of capital,” he says. “For most other amongst the industry’s highest. According to The range of products and options has never
businesses, that would be considered a AirFleets.net, Delta Air Lines has 838 aircraft been greater. The claims and allegations by
normal level of return to investors. But three with an average fleet age of 17.1 years and many consumer groups are ill founded and, in
years of sustainable profits is a first for the United has 725 aircraft with an average age some US cases, reckless.
airline industry. And after many years of hard of 14.1 years. Delta has 245 aircraft on order
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