7 ms·

>The profit bit of the picture, though, has changed a lot. Last year America’s airlines made $24 billion—more than Alphabet, the parent company of Google. Wow,

by gozur88 11y ago

>The profit bit of the picture, though, has changed a lot. Last year America’s airlines made $24 billion—more than Alphabet, the parent company of Google. Wow, that's profound. An industry with 600k employees made more than Google last year! Next you'll be telling me the banking industry makes more than Microsoft! Airlines need to make big profits in good years - they lose money like crazy in bad years. I don't know if it's still true, but at one time if you subtracted all the money US airlines lost from the money they made since the beginning of the industry you'd have a negative number. To the larger point, this is what happens when you pile on a bunch of regulations and then allow industry to capture the regulators. The barriers to entry are raised so high it's impossible to have real competition.

diskcat 11y ago
>The barriers to entry are raised so high it's impossible to have real competition. once again the government is responsible for it. don't worry though, im sure somebody will call for the government to 'reform' the industry and make all the problems go away.
- domfletcher 11y ago
  It's certainly not entirely the governments fault. Airlines need to be strongly regulated with good reason and pretending that they don't lobby and campaign to increase regulation that acts as a barrier to entry is myopic at best.
- Ensorceled 11y ago
  Why did you assume the OC meant the regulators was bad rather than their capture?
  - diskcat 11y ago
    any regulator is bound to be captured because the special interest has more concentrated power compared to consumers. Thus regulation always does the opposite of what it is supposed to do in the long run. This is a common theme with interference with the free market.
    - gozur88 11y ago
      I'm not sure it has to be that way, though the more complex the regulations are the easier it is to influence regulators.
- mikeash 11y ago
  Under that government regulation, the industry has produced the safest mode of transportation ever seen, healthy competition, and extremely low prices. If that's an example of what government regulation produces, I say bring it on!
hkmurakami 11y ago
>I don't know if it's still true, but at one time if you subtracted all the money US airlines lost from the money they made since the beginning of the industry you'd have a negative number. Out of curiosity, what does the landscape look like if you excluded carriers that went outright bankrupt? Also, how are dividends considered?
- DavidHm 11y ago
  Why would you exclude them? Survivorship bias is something that needs to be eliminated, not baked in.
  - hkmurakami 11y ago
    I think it's worth seeing how the breakdown turns out between the survivors and failures. Are the losses concentrated in a small number of major train wrecks or dispersed evenly? etc.
    - DavidHm 11y ago
      That makes sense, I would be interested to seeing that too. For the purposes of assessing the industry's profitability though, we cannot exclude them - if losses are because they were badly run and lost market share to other players, then their losses will be offset by the survivals (who then buy them out).
  - restalis 11y ago
    But what I'm interested in is to measure the general health of the living. Counting in the dead (from the entire history) makes no sense.
    - DavidHm 11y ago
      If you are interested in the general health of the current companies over the last few years, that would make sense. But it does not properly assess the profitability of the industry - unless you think you can pick in advance who the survivors are going to be. If you systematically ignore the companies that go bankrupt, you will have a picture of the industry that is far healthier than the reality. Further - especially in the airlines industry - you can't even go back too many years with the examination of the current companies - because they are the results of many mergers. So you should also be including the companies that used to be, but got merged in the existing ones.
klausjensen 11y ago
>Airlines need to make big profits in good years - they lose money like crazy in bad years. I don't know if it's still true, but at one time if you subtracted all the money US airlines lost from the money they made since the beginning of the industry you'd have a negative number. Famously, Richard Branson once said: If you want to be a Millionaire, start with a billion dollars and launch a new airline.
- qznc 11y ago
  However, Branson (Virgin) has three of them. https://www.virgin.com/gateways/virginairlines https://www.virgin.com/gateways/virginairlines
  - takno 11y ago
    Virigin tend to take small ownership stakes in companies and just lease their name and branding out to them. In the case of Airlines they own 25% of Virgin America, 51% of Virgin Atlantic and 10% of Virgin Australia.
    - mortehu 11y ago
      25% is the maximum "aliens" can own or vote in an airline flying domestically in the US, so while it might be a small stake, it's also the largest possible stake.
- pbhjpbhj 11y ago
  In which years did American Airlines last lose $24billion (or its equivalent accounting for inflation). Or do they have long streaks of smaller losses?
  - jneal 11y ago
    There is a small miscommunication here. It's America's airlines (the entire industry) not American Airlines (the company). This article from November last year has more details: http://priceonomics.com/can-airlines-make-money/ http://priceonomics.com/can-airlines-make-money/ > Overall, the industry has lost $35 billion since deregulation.
hga 11y ago
To the larger point, this is what happens when you pile on a bunch of regulations and then allow industry to capture the regulators. Not using up one of my economist.com free articles per month, but I think this is what happens when an industry has the cost of their biggest variable expensive crash: http://www.macrotrends.net/1369/crude-oil-price-history-chart http://www.macrotrends.net/1369/crude-oil-price-history-char... Note that they'll tend to hedge their purchases, which protects them for a while from fuel cost increases while also delaying the benefit of decreases.
jernfrost 11y ago
I think it is a myth that all companies want is light regulation and the evil guvmint comes in an cover them in red tape. A lot of the regulations have been lobbied for by companies to keep out competition. Just look at the recent Tesla cases. You can go hundreds of years back and companies and businesses were already then busy at pushing through special privileges to keep their profits high. It isn't a matter of whether you regulate or not, but about the quality of regulation and who it is aimed at regulating. When politics can be bought by power business interests you can bet there will be ever more regulations piled on which don't actually help consumers much.
- creshal 11y ago
  > You can go hundreds of years back and companies and businesses were already then busy at pushing through special privileges to keep their profits high. Guilds are probably the prime example. Government-enforced cartels established by the industries to keep up prices for centuries.
- DanielBMarkham 11y ago
  I don't disagree here, but I am concerned you may be overstating your point. Regulation is rarely a case of being good or bad. Rather, various competing interests have valid points and some arbitration must be found between them. As the old saying goes (paraphrased), politics is about slogans. Governance is about choices. Political systems exist for political purposes. So what happens over time in a democracy is that regulations that sound good get enacted while regulations that don't sound good are not. In addition, regulations are enacted that sound good even in cases that may not require any regulation at all. To fix this, politicians use cartoonish slogans -- "all government is bad" or "we need somebody to protect us from corporations" This response, while great for the political system, does nothing to address the underlying bug in the regulatory system.
  - coldtea 11y ago
    >Regulation is rarely a case of being good or bad. Rather, various competing interests have valid points and some arbitration must be found between them. A lot of the time it's just plain bad -- just the result of monetary influence and lobbying for unfair advantages.
rayiner 11y ago
Is there lack of competition in the airline industry? It seems like the opposite. For any given trip I have half a dozen fungible choices and can instantly price compare and choose the cheapest one. That's a highly competitive market, not an uncompetitive one. Also, even a 24 billion profit in a good year isn't exceptional given the industry has $160 billion in revenue. Google in 2015 made 23 billion in profit on only 75 billion in revenue.
- spydum 11y ago
  Is that really true? Sure there are plenty of airlines, but I find they don't all compete head to head. For a given region or set of source/destinations, it seems to me you get only around 3-4 carriers which actually fly.
  - alistairSH 11y ago
    I've been looking at fares from DC to Rome and DC to Edinburgh. In both cases, there were MANY options... United, Aer Lingus, Turkish Airlines, Lufthansa, WOW, Iceland Air, Delta/KLM. I also had to book return tickets from DC to Denver. Fewer choices domestically, but still Southwest, United, and Frontier.
- BorgHunter 11y ago
  It really depends on the route. Personally, I live in Chicago, which means I have lots of options going to midsized and large airports, and prices can be very competitive.⁰ Small airports are often served only by one of the three airlines with a large presence here (United, American, Southwest), and it's these routes that have higher prices. In the past, I've taken 13 hour (overnight) Megabus trips instead of <2 hour plane trips just because United's prices on some small monopoly route or another were so outrageous. For those who live in a town or city with few options like that, airline travel is a lot more expensive than it is for us lucky ones in hub cities, takes a lot longer because of transfers, and is a lot less flexible with flight times and such. This is a factor behind a lot of corporate HQ relocations to big cities, as well. ⁰ I actually recently bought a roundtrip to Denver for $32 fully inclusive of taxes and fees. Granted, it's on Spirit, which is only marginally better than the bus, but can't beat the price.
Bhullnatik 11y ago
Not that I disagree with you, but it's a country's industry. I'm sure as a whole, airlines as an international industry bring much more than Alphabet/Google.
anentropic 11y ago
regulations are also important to ensuring competition

by gozur88 11y ago

diskcat 11y ago

>The barriers to entry are raised so high it's impossible to have real competition. once again the government is responsible for it. don't worry though, im sure somebody will call for the government to 'reform' the industry and make all the problems go away.

domfletcher 11y ago
It's certainly not entirely the governments fault. Airlines need to be strongly regulated with good reason and pretending that they don't lobby and campaign to increase regulation that acts as a barrier to entry is myopic at best.
Ensorceled 11y ago
Why did you assume the OC meant the regulators was bad rather than their capture?
- diskcat 11y ago
  any regulator is bound to be captured because the special interest has more concentrated power compared to consumers. Thus regulation always does the opposite of what it is supposed to do in the long run. This is a common theme with interference with the free market.
  - gozur88 11y ago
    I'm not sure it has to be that way, though the more complex the regulations are the easier it is to influence regulators.
mikeash 11y ago
Under that government regulation, the industry has produced the safest mode of transportation ever seen, healthy competition, and extremely low prices. If that's an example of what government regulation produces, I say bring it on!

hkmurakami 11y ago

>I don't know if it's still true, but at one time if you subtracted all the money US airlines lost from the money they made since the beginning of the industry you'd have a negative number. Out of curiosity, what does the landscape look like if you excluded carriers that went outright bankrupt? Also, how are dividends considered?

DavidHm 11y ago
Why would you exclude them? Survivorship bias is something that needs to be eliminated, not baked in.
- hkmurakami 11y ago
  I think it's worth seeing how the breakdown turns out between the survivors and failures. Are the losses concentrated in a small number of major train wrecks or dispersed evenly? etc.
  - DavidHm 11y ago
    That makes sense, I would be interested to seeing that too. For the purposes of assessing the industry's profitability though, we cannot exclude them - if losses are because they were badly run and lost market share to other players, then their losses will be offset by the survivals (who then buy them out).
- restalis 11y ago
  But what I'm interested in is to measure the general health of the living. Counting in the dead (from the entire history) makes no sense.
  - DavidHm 11y ago
    If you are interested in the general health of the current companies over the last few years, that would make sense. But it does not properly assess the profitability of the industry - unless you think you can pick in advance who the survivors are going to be. If you systematically ignore the companies that go bankrupt, you will have a picture of the industry that is far healthier than the reality. Further - especially in the airlines industry - you can't even go back too many years with the examination of the current companies - because they are the results of many mergers. So you should also be including the companies that used to be, but got merged in the existing ones.

klausjensen 11y ago

>Airlines need to make big profits in good years - they lose money like crazy in bad years. I don't know if it's still true, but at one time if you subtracted all the money US airlines lost from the money they made since the beginning of the industry you'd have a negative number. Famously, Richard Branson once said: If you want to be a Millionaire, start with a billion dollars and launch a new airline.

qznc 11y ago
However, Branson (Virgin) has three of them. https://www.virgin.com/gateways/virginairlines https://www.virgin.com/gateways/virginairlines
- takno 11y ago
  Virigin tend to take small ownership stakes in companies and just lease their name and branding out to them. In the case of Airlines they own 25% of Virgin America, 51% of Virgin Atlantic and 10% of Virgin Australia.
  - mortehu 11y ago
    25% is the maximum "aliens" can own or vote in an airline flying domestically in the US, so while it might be a small stake, it's also the largest possible stake.
pbhjpbhj 11y ago
In which years did American Airlines last lose $24billion (or its equivalent accounting for inflation). Or do they have long streaks of smaller losses?
- jneal 11y ago
  There is a small miscommunication here. It's America's airlines (the entire industry) not American Airlines (the company). This article from November last year has more details: http://priceonomics.com/can-airlines-make-money/ http://priceonomics.com/can-airlines-make-money/ > Overall, the industry has lost $35 billion since deregulation.

hga 11y ago

To the larger point, this is what happens when you pile on a bunch of regulations and then allow industry to capture the regulators. Not using up one of my economist.com free articles per month, but I think this is what happens when an industry has the cost of their biggest variable expensive crash: http://www.macrotrends.net/1369/crude-oil-price-history-chart http://www.macrotrends.net/1369/crude-oil-price-history-char... Note that they'll tend to hedge their purchases, which protects them for a while from fuel cost increases while also delaying the benefit of decreases.

jernfrost 11y ago

I think it is a myth that all companies want is light regulation and the evil guvmint comes in an cover them in red tape. A lot of the regulations have been lobbied for by companies to keep out competition. Just look at the recent Tesla cases. You can go hundreds of years back and companies and businesses were already then busy at pushing through special privileges to keep their profits high. It isn't a matter of whether you regulate or not, but about the quality of regulation and who it is aimed at regulating. When politics can be bought by power business interests you can bet there will be ever more regulations piled on which don't actually help consumers much.

creshal 11y ago
> You can go hundreds of years back and companies and businesses were already then busy at pushing through special privileges to keep their profits high. Guilds are probably the prime example. Government-enforced cartels established by the industries to keep up prices for centuries.
DanielBMarkham 11y ago
I don't disagree here, but I am concerned you may be overstating your point. Regulation is rarely a case of being good or bad. Rather, various competing interests have valid points and some arbitration must be found between them. As the old saying goes (paraphrased), politics is about slogans. Governance is about choices. Political systems exist for political purposes. So what happens over time in a democracy is that regulations that sound good get enacted while regulations that don't sound good are not. In addition, regulations are enacted that sound good even in cases that may not require any regulation at all. To fix this, politicians use cartoonish slogans -- "all government is bad" or "we need somebody to protect us from corporations" This response, while great for the political system, does nothing to address the underlying bug in the regulatory system.
- coldtea 11y ago
  >Regulation is rarely a case of being good or bad. Rather, various competing interests have valid points and some arbitration must be found between them. A lot of the time it's just plain bad -- just the result of monetary influence and lobbying for unfair advantages.

rayiner 11y ago

Is there lack of competition in the airline industry? It seems like the opposite. For any given trip I have half a dozen fungible choices and can instantly price compare and choose the cheapest one. That's a highly competitive market, not an uncompetitive one. Also, even a 24 billion profit in a good year isn't exceptional given the industry has $160 billion in revenue. Google in 2015 made 23 billion in profit on only 75 billion in revenue.

spydum 11y ago
Is that really true? Sure there are plenty of airlines, but I find they don't all compete head to head. For a given region or set of source/destinations, it seems to me you get only around 3-4 carriers which actually fly.
- alistairSH 11y ago
  I've been looking at fares from DC to Rome and DC to Edinburgh. In both cases, there were MANY options... United, Aer Lingus, Turkish Airlines, Lufthansa, WOW, Iceland Air, Delta/KLM. I also had to book return tickets from DC to Denver. Fewer choices domestically, but still Southwest, United, and Frontier.
BorgHunter 11y ago
It really depends on the route. Personally, I live in Chicago, which means I have lots of options going to midsized and large airports, and prices can be very competitive.⁰ Small airports are often served only by one of the three airlines with a large presence here (United, American, Southwest), and it's these routes that have higher prices. In the past, I've taken 13 hour (overnight) Megabus trips instead of <2 hour plane trips just because United's prices on some small monopoly route or another were so outrageous. For those who live in a town or city with few options like that, airline travel is a lot more expensive than it is for us lucky ones in hub cities, takes a lot longer because of transfers, and is a lot less flexible with flight times and such. This is a factor behind a lot of corporate HQ relocations to big cities, as well. ⁰ I actually recently bought a roundtrip to Denver for $32 fully inclusive of taxes and fees. Granted, it's on Spirit, which is only marginally better than the bus, but can't beat the price.

Bhullnatik 11y ago

Not that I disagree with you, but it's a country's industry. I'm sure as a whole, airlines as an international industry bring much more than Alphabet/Google.

anentropic 11y ago

regulations are also important to ensuring competition