Delta to Trim Flights as Fuel Prices Rise

[mahatmakanejeeves]

Last edited Thu Jul 12, 2018, 11:42 AM - Edit history (1)

Source: The Wall Street Journal.

Delta to Trim Flights as Fuel Prices Rise

Higher costs are weighing on airlines after a record stretch of profits

By Alison Sider

https://twitter.com/alyrose
[e-mail]

Updated July 12, 2018 9:02 a.m. ET

Delta Air Lines Inc. DAL +2.04% said higher fuel costs are cutting into profit even as demand for air travel grows. ... Delta beat earnings forecasts on Thursday as record revenue helped offset a $578 million higher fuel bill than in the second quarter of last year. But the No. 2 U.S. carrier by traffic said those rising fuel costs will weigh on profit for the rest of this year. Delta said its fuel bill in 2018 would be $2 billion higher than last year.

"We have seen early success in addressing the fuel cost increase," said Delta Chief Executive Ed Bastian. "We have positioned Delta to return to margin expansion by year-end."

Delta said it plans to trim underperforming routes after the peak summer travel season ends, reducing capacity growth this fall by 0.5 to 1 percentage point. The Atlanta-based carrier said its closely watched unit-revenue metric rose 4.6% in the second quarter compared with that period last year. The company expects it to increase by 3.5% to 5.5% in the third quarter.
....

Airline shares fell sharply on Wednesday after American Airlines Group Inc. warned that its revenue per available seat mile would fall short of its previous guidance. American's shares fell 8% to their lowest level in nearly two years.
....

Write to Alison Sider at [e-mail]

Read more: https://www.wsj.com/articles/delta-hit-by-higher-fuel-costs-1531396327

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Which means layoffs.

From the same journalist, last week:

Will airlines cut capacity as fuel costs climb? https://www.wsj.com/articles/pricier-fuel-to-test-airline-profits-1531058400 ... via @WSJ

Link to tweet

[relogic]

1. A bumpy, turbulent flight ahead for vacationers

particularly harsh for those of us on limited budgets for such indulgences. Get used to enjoying the niceties of local spots ignored by too many vacationers.

[Aristus]

2. I wonder when we'll start to see a resurgence in passenger rail travel.

I'd much rather take longer to get to my destination if the journey is going to be more comfortable, with fewer hassles, and no danger of falling out of the sky.

Sleeper cars, a passenger lounge, better food, periodic stops to embark or disembark passengers, allowing riders to get out and stretch their legs. Leave the six hour cross-country flights for the high-rollers.

[melm00se]

3. Pricing and travel time would have to get much better

I just ran an estimate on a round trip from my home to Los Angeles.

Raleigh to Los Angeles = $2161 per person (with a sleeper) and almost 6 days in total travel time for a round trip.

[Aristus]

4. I agree.

This is an area in which I think encouraging entrepreneurs to step up and fill a niche might actually be appropriate.

I'm a passionate opponent of 'privatize everything'. But I think there's a tremendous opportunity here to offer a sound alternative to the sardine-can approach to nationwide travel. The airlines have become so fanatically dedicated to the idea of profit at the expense of comfort, convenience, and safety that a new look at the viability of private passenger rail service is justified.

[melm00se]

6. the problem with railroad lines

is that they are extremely capital intensive.

Depending upon various factors and based upon a cursory web search, it appears that the cost per mile of rail track (not including things like rights of way, bridges, crossings, regulatory and the inevitable legal costs) range between $1 - 12 million per mile.

I couldn't find how long it takes to lay a mile of track so that would also be a variable in the calculation.

In addition, you have the costs of the locomotives and rail cars.

Looking at those costs alone would scare off any entrepreneur as running a line from NY to Chicago would be $1 to 10 billion (not including financing costs as well as RoW etc.) and they would want to see a reasonable return on that investment.

In addition to those hard costs, you also have the PR issues of enticing people to take the train which will be slower, less frequent and less flexible than existing forms of transportation.

If you looked back at the development of intracity rail lines in the late 19th and early 20th century, almost all of the private railways went bankrupt and the lines and infrastructure ended up in the hands of the local governments (which is one of the reasons why they even exist in the form that are today) as they could not effectively generate sufficient profits to survive.

The American interurban lines (running from metro areas out to smaller urban areas and the early suburbs), with the exception of major metros like NY, Boston, Chicago etc., were almost entirely wiped out by the Great Depression. Due to the rise of the automobile in the postwar years, those lines never had a chance to rally back.

Without a fundamental shift in perception, travel patterns, population patterns and train coverage, I really struggle to see how trains would effectively work in the USA. I am certain if you threw enough money at it and applied draconian regulations to prevent development plans from being mired in political and legal swamps it could happen but I can't see that happening.

[Aristus]

7. Those are some sobering numbers. Thanks.

You mentioned a fundamental shift in perception. I was wondering if that was going to happen soon.

I appreciate you mentioning the bankruptcies of former private rail lines. That ought to give the 'the private sector can do anything better than government, cheaper and more efficiently' types something to think about.

You also mentioned changes in population patterns. More and more people are moving to the cities, and rural America is having trouble hanging on to its young people, who go to the cities seeking opportunites the rural areas no longer offer.

Between growing urban populations, and the attendant increases in inter-city travel, I wonder if rail travel will become more viable as a result. Airplanes get only grow so big to accomodate increased demand for travel, before they become too unwieldy and unsafe to fly. Whereas rail travel only needs to increase the number of cars per train in order to meet the same increase in demand. Plus, I wonder if technology upgrades and the resulting increases in efficiency could mitigate the costs you outlined above. (And yes, I understand that the technology upgrades themselves represent huge costs in and of themselves.)

I'm just spitballing this because we seem to be reaching the limits of sustainable, affordable, and accessible commercial air travel.

[mahatmakanejeeves]

8. Passenger Travel

Passenger Travel

....
Roughly 85 percent of the total miles traveled by passengers (or passenger miles) occurs in private vehicles—primarily cars and light trucks—operated on the nation’s roads and highways. Commercial aviation accounts for about 10 percent of passenger miles, and transit, intercity bus, and intercity rail represent the balance. Whereas transportation policy in the post–World War II era resulted in the construction of extensive transportation facilities, the economy and population of the United States continue to grow. In an increasingly affluent society, moreover, the demand for transportation has risen even more rapidly than the number of people (Figure 2). Two key issues involved in meeting this demand have been addressed by TRB committees: reducing metropolitan-area congestion and improving intercity travel.



Percentage Increase in Population and Travel in the United States, 1977–1995

[melm00se]

9. Keep in mind that

I appreciate you mentioning the bankruptcies of former private rail lines. That ought to give the 'the private sector can do anything better than government, cheaper and more efficiently' types something to think about.

Local governments did not build these lines and upon the dissolution of these private enterprises due to bankruptcy, the local governments took over the lines as no one else wanted them.

As to the population patterns: there has been an ebb and flow of where populations live over the last century and a half.

- In the late 19th and early 20th century, people moved from rural areas to metro areas due to the increased industrialization of cities (with better paying jobs).
- In the mid to late 20th centuries, people migrated away from cities into the suburbs (and exurbs) due to the congestion and decay (which is a harsh word) of metropolitan housing as well as rising crime (see 1970's NYC as an example) and increasing taxation.
- We are seeing the early stages of the flow back into cities as suburban housing has seen the same pricing pressures that metro areas experienced and it is cheaper to rebuild existing metropolitan housing stock.

I would anticipate the flow to reverse as urban property prices begin to spiral upward as metro areas revisit the issues that created suburban migration. This, especially, will happen as the requirement to be physically present at your workplace increases (remote/teleworkers).

This back and forth creates question as to whether or not it makes good fiscal sense to invest the huge amounts of money necessary to build up railway type infrastructure especially with the historical precedents of their requiring significant financial subsidies to remain financially viable.

What many people see is that development is a binary thing when in reality it is a complex interaction of events, attitudes, social and economic factors and, as the founding fathers understood, it is not a "one size fits all" environment. Throwing a ton of weight in one direction may seem to be the right solution *now* but 10, 20 or 50 years later, it could be viewed as a mistake.

[Initech]

5. Trump fans voted for this.

If they don't get to take vacation, it is actually kind of their own fault.