Profits Low Despite Increased Air Travel

Despite the fact that air travel has increased by 8.2 percent in 2010 lobby groups still argue profits are very low. According to the International Air Transport Association airlines had a rough 2009 and were pleased by the slow recovery in 2010. Freight traffic rose by 20.6 percent, which formed another sign for a recovering economy and people’s interest to use flights as a primary option of travel. Cleveland Hopkins Airport’ outgoing president, Giovanni Bisignani, was glad about the increasing interest to “travel and do business again” but calms his excitement by looking at the tight profit margins. “Airlines ended the year slightly ahead of early 2008 volumes, but with a pathetic 2.7 per cent profit margin,” he said. “The challenge is to turn the demand for mobility into sustainable profits.”

The installment of the low profit margins is partially due to fluctuations in oil prices. In times when passengers are trying to find the cheapest tickets and sticking to tight budgets, airlines are forced to keep prices low in order to keep demand steady. Therefore any increase in fixed costs will have an enormous effect on profit margins. Bisignani explains just how big the consequences of an increase in oil prices can be: “for every dollar increase in the average price of a barrel of oil over the year, airlines face the difficult task of recovering an additional $1.6 billion in costs.”

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