Why is it so hard to make money on an airline?

Associated Press

NEW YORK

Airlines may defy the law of gravity, but they can’t ignore math.

When American Airlines sought bankruptcy protection this week, it marked the 189th time a U.S. airline has done so since the government deregulated the industry in 1978. Most lived to fly again, as American probably will. Some were grounded forever.

Expensive labor contracts, erratic fuel prices and passengers used to cheap cross-country fares were to blame this time. Other times, costly planes, fears of terrorism and even outbreaks of disease have pushed airlines to the breaking point.

“It’s just a crapshoot,” said Bill Diffenderffer, CEO of Skybus Airlines, which stopped flying April 5, 2008 after less than a year in business. It was the third airline that week to fail.

In the past decade, U.S. airlines have lost a combined $54.5 billion and failed to make money in seven of 10 years.

So why is it so hard to make money running an airline?

Planes are expensive. A Boeing 737’s list price is about $80 million; leasing one costs about $300,000 a month.

Oil prices are volatile. Fuel is an airline’s largest expense. American paid an average $2.32 for a gallon of fuel last year; it expects to pay $3.01 this year. Yes, some drivers pay more for gas, but consider this: American used 2.5 billion gallons of fuel last year.

Pilots, mechanics and other employees have very specialized jobs demanding higher salaries. Government regulations and union contracts limit the length of workers’ shifts, often creating logistical challenges.

Recessions. When businesses fold or vacationers lose jobs, the airlines lose passengers.

The uncontrollable. Snowstorms, volcanic-ash clouds, earthquakes, outbreaks of diseases such as SARS and terrorism can ground planes or scare away passengers.

Besides all of that, airlines have to worry about what their competition does. If one carrier cuts fares, everybody else usually matches — even if it cuts into profits — because they know fliers will go for the airline that’s $10 cheaper.

Then there’s the brash, eager entrepreneur who decides to siphon away passengers with a hip, new airline offering deeply discounted tickets.