Jekyll and Hyde in the skies

Airlines are a disaster.
Airlines are looking up.

Welcome to the wonderful world of bidness, where what's good for many is bad for many more. Just consider this story from Bloomberg News:

Major carriers are cutting domestic capacity even as travel demand is rising, helping them fill more seats with passengers. That's sparking optimism AMR Corp.'s American Airlines, UAL Corp.'s United Airlines and others will be able to raise profits and reverse a slide in share prices. Some airline shares may double within a year because more demand and less supply will allow carriers to charge more for tickets, analysts said.

Now we all know that when capacity gets cut and demand keeps going up, something has got to give. In this case, it's passengers who are being put through the worst travel summer ever. This year's on-time performance has reached an all-time low, but that doesn't begin to tell the story. As reported by the NYT, the government statistics just track how late airplanes are, not how late passengers are.

Virginia Russell, a packaging designer who lives in Brooklyn, officially had just a two-hour delay on her evening flight from Newark to Cleveland in February. But after missing her connection to fly on to New Orleans, where she had landed an invitation for the first time to attend the elaborate Zulu Coronation as part of the Mardi Gras celebrations, her actual delay was about 13 hours, Ms. Russell said. Unable to put to use the Greek-goddess-style ball gown she had hand-sewn for the occasion, Ms. Russell consoled herself with a pulled pork sandwich and a piece of seven-layer chocolate cake from room service at a Holiday Inn near the Cleveland Airport.

But never mind her - let's get back to the financials. And friends, the financials keep getting better. US Airways, one of the biggest offenders in the way it treats its passengers (one of its flights from Boston to Philly is late 95 percent of the time), said in a filing that revenue for each seat flown per mile rose in June from the same month a year earlier. "We see an encouraging revenue environment moving into the third quarter,'' said US Airways President Scott Kirby. And in a June 19 report, airline analyst Kevin Crissey writes, "We believe the stock has washed out and will move nicely higher."

From the industry's point of view, cutting back on flights, slashing labor costs, dropping unprofitable routes and defaulting on pension obligations are tough but necessary steps - or don't you recall that carriers lost $40 billion from 2001 to 2006? These days, the eight largest U.S. airlines may have combined net income of $4 billion this year. Now granted, there's a part of this that makes no sense whatsoever. I mean, if you run a business where you treat your customers like... well, shit, you should expect to lose most of those customers. Same with the people who work for you. But airlines are immune from the normal concerns of employee relations and customer service because 1) every other carrier does much the same thing; 2) air fares remain relatively affordable; and 3) most travelers - the dummies that we are - still don't consider the hassles to be great enough for them forgo flying. Just kick me and beat me - I can take it! More from Bloomberg:

Nine analysts rate AMR stock (parent of American Airlines) a "buy,'' compared with one who rates it "sell,'' according to a Bloomberg survey of recommendations over the past three months. "Buy'' ratings also outnumber recommendations to hold or sell shares of UAL, US Airways, Southwest, Delta and Continental Airlines Inc. AMR shares may gain to as much as $64 from their closing price Thursday of $28.43, according to analyst price targets. United parent UAL may rise to $60 from $44.20 and US Airways to as much as $65 from $33.82. Continental, the fourth-largest U.S. carrier, may climb as high as $53 from $37.29.

The last word comes from the NYT:

Last week, Fran Jolly, a customer service coordinator in Continental’s operations center in downtown Houston, was working to rebook about 50 passengers on a Hamburg, Germany, flight to Newark, delayed nine hours by a broken window. Eight Denver-bound passengers would wait around for a 2:45 p.m. flight the next day — a 24-hour delay. Late, of course, is better than not at all. So, with planes so full, Continental at times decides to hold connecting flights for late-arriving passengers because no seats are available on later flights. A Houston-to-Guayaquil, Ecuador, flight last week was held for two-and-a-half hours so that 35 passengers on a delayed flight out of New York could make the connection.