As shown on the income statement the profit margin has been negative in the airline industry since 2000. However, in 2006 U.S. airlines generated an operating margin of 4.6 percent on operating profits. After factoring in $4.1 billion in interest expense, $653 million in income taxes and $301 million in miscellaneous non-operating income, the industry posted net earnings of $3.0 billion and net profit margin of only 1.9 percent. This was well below the average for U.S. corporations. In 2006 things started changing for the airline industry. In 2006 passenger airlines utilize nearly four fifths of the seating capacity. Also, rising passenger yield and aggressive cost control drove the average break-even load factor down four points to 79 percent. While that threshold remained weakly high, allowing for only the slimmest of profit margins (airlines.org).
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6 percent. In 2006, system wide available seat miles (ASMs) rose only 0.3 percent – the slowest pace since 2002. Domestic ASMs fell 1.5 percent. In contrast, international ASMs raised 5.8 percent as many carriers continued to reorient their networks toward more profitable overseas markets. With RPMs growing nearly eight times as fast as ASMs, industry capacity utilization gained another 1.6 points, reaching a modern record of 79.2 percent. The average domestic load factor rose 2.0 points to 79.0 percent; the average international load factor rose 0.4 points to 79.9 percent. It is interesting to note that, domestically, the industry filled a substantially greater share of its seats than it did just five years earlier, only to achieve the most modest of profit margins (airlines.org).
Industry operating revenues increased 8.3 percent to $163.8 billion, on the heels of solid growth in passenger, cargo and additional revenues, and against a backdrop of 3.3 percent growth in real U.S. gross domestic product (GDP). Passenger revenue increased 8.2 percent as traffic growth was accompanied by a 5.7 percent gain in system wide yield, this lead to the largest jump in yield since 1988. Domestic yield rose 5.7 percent, its biggest leap since 1993, and international yield went up for the fourth consecutive year of growth, at 6.2 percent, its largest gain since 1988. These advances in pricing strength played an instantly recognizable role in repairing industry finances after years of soft demand. In turn, passenger revenue rose up to 0.75 percent of U.S. GDP, a modest bump from 2005, but still well below the pre-9/11 average of 0.95 percent. That gap, applied to the nation’s 2006 GDP, translated to $26.5 billion in “missing” passenger revenue for
U.S. airlines (airline.org)
The airline industry market has had its ups and downs, currently the airline industry is in the positives of making profit. The battle of keeping up with the positive profit margin, especially in the current economy will be a challenge. Although, with cuts in unnecessary cost can result the airline industry to be successful.