The global airline industry has seen a profit bonanza the past five years as air carriers have sought to profit from the “ultra-low-fare revolution.”
The average operating profit margin for US-based airlines more than tripled between 2012 and 2015, according to data from Morgan Stanley. This trend was even more dramatic among low-cost carriers, which, on average, almost quadrupled their profit margins during this period.
For example, United Airlines, the carrier responsible for brutalizing Dr. David Dao on an overbooked flight last month, saw its profit margin increase from about 4 percent to 15 percent in 2015. At the same time, the lowest-cost airline, Spirit, saw its margin increase from roughly 12.5 percent to 24 percent.
Never in the history of the US airline industry have these kinds of profits been achieved. The industry has only once broken the 10 percent mark, and that was in 2006 following a year in which airlines had double-digit negative profit margins.
Underlying this record surge in airline profit is a turn to a new ultra-low-fare flying model, which, while cutting costs for consumers, has turned economy-class flying into a humiliating and inhuman experience.
Most airlines have introduced a slew of new fees to charge passengers for what previously were assumed standards of airfare such as checked and overhead bags. The space between seats and the size of seats have been reduced. Planes are, as a matter of policy, overbooked, with the intention of maximizing profits. In-flight service, especially on longer flights, includes charges for the various goods and amenities offered.
These changes are largely driven by increased pressure from Wall Street bankers seeking the highest short-term profits. Robert L. Dilenschneider, a PR executive who advises companies and CEOs, told the New York Times, “There’s always been pressure from Wall Street, but I’ve been watching this for 30 years, and it’s never been as intense as it is today.”
Jamie Baker, a leading JPMorgan Chase airline analyst, told the Times, “Fifteen years ago, airlines competed with each other over who could buy the most planes or have the most routes. Executives are just as competitive today, but it’s about who can achieve an investment-grade rating first, who can be a component in the S & P 500, and who has better returns for investors.”
This pressure from Wall Street has completed a transformation already under way in the airline industry. Following the deregulation of the industry in the 1970s, airlines steadily clawed back the gains of pilots and airplane staff, while cheapening and undermining the comfort and safety of flying. In pursuit of profit, they have reoriented the industry toward cost-cutting, penny-pinching, and tiers of service.
For example, the size of seats and the distance between the seat and the next row have been substantially reduced over the past several decades. In the 1970s, seats averaged 18 inches wide. Now, they are only 16 and a half inches, even though the average American is larger. Leg room used to be about 35 inches on average; now, the average is 31 inches, with airlines like Spirit going as low as 28 inches—the minimum the federal government allows.
After years of cost-cutting and bankruptcies, four airline carriers hold a virtual monopoly on the American market with 80 percent of all flights. This monopoly limits competition—further inflating profits.
Incidents like the brutalization of the United passenger last month are only the sharpest expression of the general degradation of conditions for both passengers and staff. A short look at reviews of working at Spirit on the jobs site Glassdoor shows how underpaid, exhausted employees must routinely ignore and deny requests to flyers because the company will not allow it—making everyone, except the investors, unhappy.
One worker writes, “Stressful and hostile environment with mad passengers due to the company’s awful policies so you have to be cold blooded to tell NO to passengers even when most of the times they are right, cheap/crappy equipment and systems, mandatory overtime, lots of arguing with passengers because they have to pay for breathing.”
These conditions, mixed with low fuel costs, have given airlines record profits in the past few years. However, with the introduction of many upstart low-cost carriers such as Norwegian, Spirit, and Ryanair, the European and American flight market has entered a period of more-savage competition with signs pointing to lower future profits.
According to the International Energy Association, costs for jet fuel will probably rise significantly this year and next, cutting into profits. In addition, despite the best efforts of the airline unions to help the corporations contain labor costs, analysts are expressing fear of a “wages push” by pilots, flight attendants, mechanics, baggage handlers, ticket agents and other workers.
The ultra-low-fare model is a recognition that the mass of working people—who have also suffered years of stagnant or falling income—are already hard-pressed to pay for air travel, and higher-cost tickets would push these consumers away.
Any sign of a downturn in profits will only intensify Wall Street’s drive to discipline the airline industry into further cost-cutting, which has already transformed flying into a type of human-cargo service.
Travel should be a basic human right. The companies, which are in the end owned and controlled by a handful of wealthy investors, should be taken over, turned into publicly owned enterprises democratically run by the working class. Without breaking the grip of the financial aristocracy over air transportation, the degrading conditions on planes for the majority will worsen.
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