Airline Profitability Flying High, But Revenues Down
Summer travel is slowing down, the leaves are already beginning to change colors, and the kids are heading back to school. With the change of season, much of our TVC airport travel focus is on business travel or Spring Break getaway 2016.
It is also a good time to look at the business surrounding the airlines and the profitability they are experiencing – now at record levels. Profit margins are at all-time highs as fuel expenses are at all-time lows. One would think there would be no concern with these statements – if it were not for revenues being down. The expense of fuel has decreased at a faster rate than the loss of revenue. Many attribute the revenue issue to a weakened U.S. dollar, loss of international traffic and airfares.
Airfares have been on a roller coaster ride within markets all over the U.S. as pressure to produce more revenue is desired. New product offerings – such as Delta Air Lines using private jets to upgrade elite frequent flyers and several other airlines offering more flights during off-peak times – are sexy ideas to find more revenue. Will it work? That’s a question for the future. For now, industry professionals are keeping a very close eye on the airlines’ revenue strength.
In a recent article in the Wall Street Journal, writer Scott McCartney discussed the degree airlines have cut flights in the U.S. between 2011 and 2015. This article sparked many calls and questions about the comparison between large and small airports and markets across the U.S. The article commented at length about how small airports and those airports in the South and Midwest have been hit the hardest. All accurate, as this trend is one we have seen all over Michigan, but not at TVC. The article compared the third week of July 2011 to the third week of July 2015. Many airports are shown to have double-digit loss of flights but TVC grew about 4.2 percent.
Another issue related to revenue is the number of seats within a market. Many markets may have the same number of departures – or they may have even lost departures – but still have passenger growth. Why? The retirement of smaller regional jets. The tread is to be flying fewer flights but with larger and more efficient aircraft. This means more seats in market. TVC is leading the charge. When comparing seats at TVC in July 2011 to July 2015, we have grown about 19.3 percent.
American Airlines is an example of this opportunity, as it will start flying the CRJ 700 jet into TVC starting September 9. This will provide customers a first-class product with a total of 66 seats on the aircraft. Let’s show American that as a community we want this product to stay.
The growth of our market continues on the strength of our tourism and the fact we are a destination to visit. Markets such as Texas, California, New York and Florida continue to draw travelers to our beautiful region. Even though the airlines are exercising discipline through capacity and pricing, we have been able to take advantage of the growth opportunities given to our community.
As we finish our peak travel season, the airport is also working on repaving our north-south runway. This pavement is 22-plus years old and will be resurfaced. The airport will be receiving about $1.7 million federal airport improvement program dollars for this project. Team Elmer’s will be performing the work. The main east-west runway will be in full operation so no disruption of flights is expected. As always, during any construction or weather event we ask passengers to use the mobile app to find out the latest information about a flight or go to tvcairport.com.
Kevin Klein is the director of Cherry Capital Airport in Traverse City.