The above, or some variant of it, was stated awhile back by some stock analyst on one of the business shows discussing the airlines’ current financial woes. His argument was that we shouldn’t be surprised; despite cyclical booms, the current model for running airlines was intrinsically flawed, as evidenced by the many bankruptcies over the years, and the “fact” that when you summed up the profit/loss record of all airlines, over the history of modern commercial aviation, there was a net loss on the aggregate balance sheet.
This factoid has been cited in enough business publications with enough supporting graphs and documentation that I believe it.
But it also doesn’t mean very much, because it mostly compares apples to oranges.
It is true that in the past few years the airline business has lost billions of dollars. Why this is true has a hundred explanations and an intrinsically flawed business model is just one of them.
Airlines have always been a precarious business. You can either have small airlines that cater to a small elite of customers or larger airlines that cater to the mass base, but either way you have an expensive way to transport a limited number of passengers. Combining the two models, as most major airlines do today, is extremely hard to pull off and seems to be the intrinsically flawed model people keep talking about.
But for most of the first several decades of airlines, the first model was in operation. For all their glamor and name-recognition, these airlines were relatively small businesses, just as Cadillac is a relatively small part of General Motors. Even if they made money, their profits were measured in tens of millions or less.
So a loss of tens of billions in a year, as has happened recently, could easily equal the total profits for the first several decades of flight. It’s true but it implies nothing about the airline business in those decades.
It doesn’t even say all that much about the business today. Or any business, for that matter. AOL Time Warner posted a formal loss of $99 billion dollars in the last year or two. That might wipe out all the profits from all tech firms since the invention of the PC. Does that mean that the computer (entertainment/news/television/tech/magazine) business is intrinsically flawed? It might be, for all I know, but this number doesn’t prove it.
Whenever someone comes out with a soundbite about numbers, believe nothing until you have taken apart all the assumptions behind the numbers.
While I agree completely with Musicat, I would also like to point out that for much of its history, airlines have been subsidized by the government. Back in the 30s, there would not have been any airlines without the mail concessions for which the government paid a lot more than they collected in airmail premiums. I doubt if they have paid the full costs involved in airports or in the air navigation and weather forecasting systems.
I read some years ago that over its lifetime, the computer industry has no net profits either. Sure IBM and more recently MS have made gobs of money, but a lot of others have taken their investors down for a fall. On average you could as well have gone to a casino as invested in computers.
I have to agree with vibrotronica more so than with either Hari Seldon or Musicat as vibrotronica seems more pleasant and, darn it, just more agreeable.
Is it possible that the net loss is a reflection of recent losses in current dollars that overshadow previous profits in unadjusted dollars? Kind of like the way new movies keep setting records for revenue when compared to older movies from decades ago.
The airlines have to be paying their bills, and some have been around for a fair chunk of time.
Hey, I was the one that Musicat quoted. Don’t I get a shout out?
Those two parts of my post are not really contradictory, BTW. What I was trying to say is that you can believe in the accuracy of a fact without necessarily believing that it is in any way meaningful.
Up until the deregulation of the 1970s, U.S. airlines were essentially a regulated monopoly. The Civil Aeronautics Board controlled which routes the airlines flew, and sometimes even how often they flew, as well as how much the airlines charged for tickets.
This was seen as essential to assuring airline service to the entire country. In return for tight regulation, the CAB often gave airlines monopolies on routes, air mail contracts and other forms of assistance.
Despite this, airlines weren’t tremendously profitable. Even the worst-researched history of U.S. aviation is filled with the names of airlines that went bust.
Given the sheer volume of air carriers that went bankrupt during the regulated era, it’s entirely possible that the industry as a whole was unprofitable. And given the track record since deregulation, including the failures of long-established carriers like Braniff, Eastern, TWA and others, it’s at least arguable that the industry has, as a whole, never been profitable.
Is it possible that the net loss refers specifically to carrying passengers, and that there’s still a net profit if you include cargo?
(Incidentally, why is government subsidy of airlines and airports a necessary expense, while the much smaller subsidy of Amtrak is just a waste of money? At least, that’s what I keep hearing.)
