Here’s why the airline industry is in for a rough ride
Despite sky high profits as of late, airlines are facing a host of problems that could weigh on future performance.
For one, federal regulators are exploring concerns that the biggest airlines violated competition rules. Meanwhile, workers at Southwest Airlines (LUV) and Delta Air Lines (DAL) have been battling with upper management for better pay, rejecting recent labor contracts. On top of that, investors are losing faith that the airlines can weather the upheaval, sending stock prices into a tailspin.
At the same time, there’s a lot going right for airlines right now. Low oil prices since mid-2014 have helped bolster the bottom line, and earnings for U.S. airlines collectively hit over $8 billion in the first half of 2015 alone, reported the Wall Street Journal.
But, the dollar sum taken in for each passenger flow a mile–what’s called the unit revenue–has steadily fallen this year, primarily due to lower ticket prices. The unit revenue is the metric investors are really fixated on and are concerned that the tide won’t turn until at least next year. Luckily airlines have been benefiting from low cost tailwinds, but as soon as oil prices go back up or labor costs increase, airlines will need to get customers spending more money–and that could be a challenging sell.
Read more at Wall Street Journal.