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— This is the script of CNBC's news report for China's CCTV on September 29, Friday.
This year can be surmised as a 'whirlwind of troubles' for airlines. A series of hurricanes and bad weather all around the world have led to airport shutdowns, cancellation of flights and low tourist numbers, resulting in losses for airlines. US financial services company Cowen Group estimated that United Air is likely to take at least $265million financial hit from the Hurricane Harvey in August, while Southwest Airline lost about $77million. On the other hand, Discounter Spirit airlines lost up to $11million.
On a whole, airlines are in a very precarious situation during hurricanes. Apart from the losses caused by cancellation of flights, hurricanes also further burden airlines as they are responsible for evacuating local residents. In order to prevent sky-high prices due to residents scrambling to secure last minute evacuation flights, many airlines have capped airline fares or even introduced discounted prices to aid evacuation. Despite these measures, many people still feel that airlines have not provided enough evacuation flights. For example, on the eve of Hurricane Maria in Puerto Rico, American Airlines was criticized for the lack of flights going out.
In an interview with American Airlines CEO, Doug Parker, he said that during a hurricane, airlines will still try their best to help local residents evacuate despite having to absorb the losses. However, airline requirements and security issues have brought about limitations for airlines.
[American Airlines CEO, Doug Parker] "The problem is the structure that's currently in place and you know we've been allowed to fly three flights a day up till now. I mean we saw to be safe. So ATC there has to be there to be. The FAA has to be comfortable with it. The infrastructure has to be there to unload aircraft. The TSA has to be in place to allow people on airplanes. All that stuff still exist and it's just not there today."
Obviously, the recent bad weather has further plunge airlines 'stock prices, especially during this off-peak season.
As we can see, American Airlines' stock prices have been falling since July, which basically erased all its gains since this year. However, some analysts believe that after the hurricane and the off-peak season, the US airlines will gradually pick up.
But, this still depends on the strategies that major US airlines are employing in recent years. One of the strategies is large-scale restructuring which includes several mergers such as the Delta and Northwest Airlines merger, the United Airlines and Continental Airlines merger and American Airlines and the US Airways merger, so on and so forth.
After this restructuring, these giants formed almost a monopoly in the market. Profits were reinvested into the replacement of new models so as to attract visitors who were willing to purchase expensive fares.
"Nice thing about profits is that it allows us to invest again and we've been doing that faster than any one we're we're bringing a new airplane every four days to replace an older aircraft. We have invested $20 billion or so since the merger just in improving the product that makes a difference and it matters to a premium travellers And we're going to be better yet again in a couple of years than it is today and that's that allows us to attract higher premium traffic."
Also in recent years, the US aviation giants have been maximizing profits with the introduction of a very complex airfare system such as having first class, business class, premium economy class, standard economy class, and basic economy class for airfares. American Airlines and United Airlines have been facing lots of criticism from the public since they started to aggressively promote of their basic economy class. In fact, in recent years, this approach in the US aviation industry is deemed to be very popular.
In other words, the airfare is the only thing included in the price. Additional services such as choosing one's seats, checking-in luggage, changing of flights, bringing pets or allowing children to fly independently will all require additional fees. So while the advertised price for airfare is getting lower, the actual cost that a passenger pays is actually getting higher. But this is obviously how the US aviation giants rake in the profits. According to the US Bureau of Transportation Statistics, American Airline in 2016 collected close to $ 4.2 billion of baggage fees, and $ 2.9 billion for a change of reservation. The total profits earned by the US Aviation industry was at $13.5 billion in 2016 and the total sum of baggage fees and change of reservation fees collected made up more than half of it.
Therefore, although the US aviation industry suffered a slew of criticism on the decline in quality of service, its profits has sustained its growth in the capital market.
CNBC's Chen Qian reporting from Singapore.