Airlines Shovel Out as Winter Weather Pummels Profits
I suppose "profit" isn't exactly the right word to use, since black ink has been scarce for the airlines the last couple years. But winter weather is going to make profitability even tougher this winter. Continental (CAL) has given us a look into what the real costs of these storms are. We're talking millions and millions of dollars.
On February 10 and again on February 26, Continental shut down operations at Newark thanks to nasty snowstorms. Those two days alone are expected to hit Continental with $25 million in lost revenue. Many people canceled flights or rebooked on other flights, thereby preventing others from buying those seats. Airlines are a high fixed cost industry, so even when flights don't go, costs still hang around.
Sure they don't have to pay for fuel or for crew time and landing fees, but that's small compared to everything else they still have to pay for. Throw in $25 million less in revenue and it hurts a lot.
This is going to repeat itself around the industry. AirTran and Southwest (LUV) have big operations in snow-bound Baltimore. US Airways (LCC) took a big hit in Washington as did United (UAUA) out at Dulles. Chicago has had some good snow as well this year, and American (AMR) and Southwest in Dallas have seen some serious accumulation as well. Even Delta (DAL) is feeling the pinch in Atlanta. More snow fell there this week.
Has anyone escaped the pain? Sure, Hawaiian, but even they've been hurt by strong rain storms on the west coast. But this winter is just downright ugly, and don't let February traffic number fool you. You're going to see big jumps in the number of seats filled and higher unit revenues. Why? Think about it. Fewer flights were flown thanks to all the weather cancellations. That means all those passengers had to squeeze on to the remaining flights. So they filled more seats during the month. Also, more people means that there is more revenue being spread out over those fewer seats. So unit revenue looks higher.
Continental, for example, saw a 5 point increase in load factor over February 2009. It also saw unit revenues go up 7.5 to 8.5 percent. A full point of that is going to be simply due to the storm impact.
Everyone has had a rough go of things this year. Hopefully winter will end soon.