Case Study: Major Airline Carriers

The Market

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Currently, the airline industry is in serious trouble with rising fuel costs forcing cutbacks, extra charges and less flights. However, none of the carriers we examined were operating under bankruptcy protection in 2007 for the first time in six years and all of the major airlines finished in the black that year.

The tide started to turn in late 2007 as rising fuel costs put airlines in the red for the fourth quarter. Meanwhile all the major airlines except for Southwest lost money in first quarter 2008 due to the increase of fuel costs, which has risen nearly 80% according to some industry reports.

The losses don’t mean people are flying less. In fact, they are flying more as passenger revenue is up for almost all of the airlines.

Still, as we all well know, the airlines have reacted to the market situation by cutting costs to the bone. Anyone who has flown recently knows the industry is now down to the bare minimum in terms of service. The cuts haven’t just come in services, but also the number of planes, crew and flights, which has created the delays. If your flight is on time now, you are surprised. On-time flight is not even expected anymore.

United was in the black last year after being granted bankruptcy protection in 2005 but it took the biggest loss in first quarter 2008. Delta and Northwest were also back in 2007 after getting bankruptcy protection in 2006 and are now proposing a merger. Airline executives knew trouble loomed ahead with labor unions making noise and adding to the problem of rising fuel costs. But considering passengers are coming back,  the airlines are in a position to start competing on brand instead of category benefits. That is where the opportunity lies for any airline that takes it. The one that does will emerge from the current situation as the strongest, especially for the long term.  

Taking a look at the market, there are several ways you can measure market share for the major players, including revenue or net income. But the industry often uses RPKs, which stand for Revenue Passenger Kilometers (or RPMs, miles for the U.S.), which represents each kilometer or mile flown per paying passenger.

In early 2008, they stack up basically the same way as they do in other measurements, with American Airlines leading and all but American posting increases since last year. (Although American Airline’s RPK has dropped only .3 percent.)

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