Quote:
Originally Posted by atlantaguy
Edit: This is the bottom line. With very few exceptions, this industry has been taken over by bean counters due to Wall Street/shareholder demand, vs. people that have a clue. The ones that do are almost all gone...
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You more than I know how unique the passenger airline business is in the US.
A) The planes, crew, (much of the)repair operations, behind the counter sales, and much of the tarmac staff is paid for by the airlines. New equipment costs are paid by the airlines.
Financing for new aircraft generally is debt created via Wall Street crafted bond issues, and, then paid back by the airlines.
B) The airports, most often, are owned by municipal entities, who run a budget that is serviced via landing fees, concession fees, and, short and long term parking fees. In the case of airports such as in Denver, the municipal authority owns sufficient surrounding land to receive addition income via rentals and/or out right land purchase.
Financing major improvements (as well as the original cost) are done through Wall Street crafted bond issues, whose ultimate payoff responsibility ends up with the municipal tax payer if payments cannot be met. This also applies to covering the spread between operating budget and income received via the airport- tax payers that back the municipal entity are responsible for paying off budget deficits.
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Airlines have had a history of volatility since the first oil crunch in the early 1970s. As fuel costs tend to the largest operating expense, profits and loses tend to follow the price of aviation fuel.
Consequently, since then, profits and losses have followed irregular cycles where debt is accumulated during high fuel cost times, and, profit is made when the price falls.
On top of that lies bankruptcy options, where as debt accumulates, whether through purchasing aircraft, and/or fuel cost increases, existing debt can be renegotiated or even written off. In addition, as the increased effects of debt service trap airline companies, the value of the stock drops.
When a third party purchases a given airline, the buyer, particularly if the buyer is another airline, has the opportunity to renegotiate gate fees and other payments with airports. This cost reduction then tends to go to reducing the debts incurred in the purchase price.
There is a system en place, that works very well. The CEOs in the industry through their lobbyists at the Federal level have been able to effectively separate "extra services" from ticket price, enabling bean counters to extract maximum profit.
IMO the major problem is that Wall Street has been able to create a short term profit centric culture while the passenger airline business is a capital intensive industry that is extraordinarily sensitive to fuel price swings*. What all this leaves us, is an industry which alternates between debt accumulation and reducing debt service costs while generating a profit. If tax laws benefit capital accumulation (within the US) and monies could be saved for a "rainy day" the airline (and almost all other) industry would be radically improved.
*I understand that for every $1 increase in the price of crude oil, fuel expense increases $1,000,000,000 for the airline industry.
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