Only days after monster storm Irma made landfall in Florida, canceling and delaying thousands of flights, the head of the world’s largest airline appeared unfazed, voicing glowing optimism about the future of air carriers.
Speaking at an industry conference in Washington, D.C., Doug Parker, chief executive of American Airlines, said the effect of Irma and the earlier hurricane that tore through Houston will be short-lived.
“I don’t anticipate a financial impact to us other than the near-term financial impact,” he said. “I feel as good about this business as I ever have.”
How could that be in a time when monster storms are more common — and some fear that travel disruptions could become a regular occurrence amid quickening climate change?
Chalk it up to science, technology and profits.
The nation’s $1.5 trillion airline industry is in the midst of one of its most financially stable eras in decades, which will help the biggest carriers absorb the short-term effects of the unusually destructive hurricane season. Increasing passenger demand and cheap fuel costs have been key in helping build the carrier’s profit margins and cash reserves.
But advances in science and technology are also playing a role. Modern weather forecasting has improved to the point that airlines can now tell with high reliability the moment a storm is expected to reach a major airline hub, making it easier to cancel and reschedule flights.
“It has helped them to be prepared, move equipment out of harm’s way and recover faster than in past decades,” said Helane Becker, an airline analyst for Cowen & Co.
Although it is too early to estimate the final dollar cost of the two hurricanes, the nation’s bigger airlines seem prepared to overcome the financial blow despite the storms’ enormous effect.
From the end of August to the first week of September, Hurricane Harvey pounded south Texas, prompting the cancellation of 11,300 flights to and from airports in Houston, according to the flight-tracking website Flightaware.com.
United Airlines, the biggest carrier at George Bush Intercontinental Airport, and Southwest Airlines, the most dominant carrier at nearby William P. Hobby Airport, took the biggest hit from Hurricane Harvey.
About a week later, Hurricane Irma began to tear through Florida and the Caribbean, forcing the closure of 40 airports and the cancellation of 14,500 flights in and out of the state and the nearby islands.
As the biggest airline at Miami International Airport, American Airlines had to cancel more than 5,000 flights.
As the storm moved inland, an additional 1,100 flights were canceled from Hartsfield-Jackson Atlanta International Airport, the world’s busiest airport.
The canceled flights represented a fraction — less than two-tenths of 1 percent — of the more than 16 million flights that take off each year in the U.S.
Still, the financial effect of the storms would, in previous times, have put a severe dent in the profit margins of most airlines, said Seth Kaplan, managing partner at Airline Weekly, a trade publication.
“At a different moment in history, this kind of impact could have made the difference between profits and losses,” he said.
Instead, airline executives have been downplaying the effect on themselves and passengers.
The airlines are expected to lose money on some canceled flights but not all of them. On all canceled flights, passengers received full refunds and most of the airlines agreed to waive change fees for those passengers whose flights were not canceled but decided to stay clear of the storm.
“There’s a blow, and we are going to absorb it,” Gary Kelly, chief executive of Southwest Airlines, said at the Sept. 13 aviation conference. “We’ll still be healthy. We’ll take care of our people, and we’ll take care of our customers.”
American Airlines issued a report, two days after Hurricane Irma made land in Florida, saying that instead of a pretax profit margin of 10 percent to 12 percent, the carrier was now expecting a slightly smaller margin of 8.5 percent to 10.5 percent for the July-to-September quarter.
During the storms, weather forecasters were able to monitor the speed and direction of the hurricanes to give airlines a good idea when to begin canceling flights and where to dispatch the planes and crews to ride out the storm.
The changing nature of travel booking also has made it easier for air travelers to reschedule in the event of a weather disaster.
Not only has online travel booking outgrown booking through a travel agent, but more than half of all online reservations are made using mobile devices instead of a desktop or laptop computer. This means travelers can literally book and reschedule travel plans on the go.
Leisure travelers who were prevented by the hurricanes from flying to tourist destinations such as Walt Disney World in Orlando, Fla., or the Florida Keys either postponed their trips or made plans to fly to other vacation spots, industry experts said.
The biggest financial hit to the airlines will be the loss of those airfares booked by business travelers, who tend to buy more expensive first-class seats but are less likely to reschedule a canceled business trip.
But today’s airlines can absorb a more severe financial blow because they are bigger and more efficient.
American Airlines, based in Fort Worth, became the world’s largest carrier by merging with rival US Airways in 2013.
It was one of several mergers and acquisitions in the airline industry over the last decade, prompted by the financial double-hit of the Sept. 11, 2001, terrorist strikes and the ensuing recession. From 2001 to 2009, the nation’s biggest airlines lost a combined $65 billion, with more than a dozen major carriers filing for bankruptcy or ceasing operations.
The industry emerged stronger, though, with four mega-airlines — American, United, Delta and Southwest — now controlling more than 80 percent of all domestic flights.
“They’ve got an oligopoly now, and they are dictating everything,” said Richard Gritta, a professor of finance at the University of Portland’s Pamplin School of Business.
Other trends have further strengthened the financial footing of the enlarged airlines.
Since 2013, fuel prices — one of the biggest industry expenses — have dropped by about 50 percent while demand for air travel has been growing by more than 4 percent a year.
This month, the Department of Transportation reported that U.S.-based airlines carried an all-time high number of passengers during the first six months of 2017 — 414 million, up nearly 3 percent from the previous record for a six-month period set in 2016.
And U.S.-based airlines are now operating more efficiently by packing those passengers into smaller seats on larger planes.
The results have been record profits for nearly every major carrier. From 2010 to 2016, the country’s biggest airlines earned a combined $61.7 billion in profits.
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