Do High Air Fares Equal Profits?

Average domestic air fares in the first quarter of 2010 increased to their second highest level since 2001, rising 4.7 % from the first quarter of 2009, the U.S. Department of Transportation’s Bureau of Transportation Statistics (BTS) reported.

The $328 first-quarter 2010 average fares were down 8.3%  from the all-time high, not inflation-adjusted, of $358 in the third quarter of 2008.

Airline revenue and profits may be directly related to fares, but they are a reasonable indicator of carrier health. Air fares excludes lease, personnel, jet fuel, and debt service costs.

The stock market must see some correlation between fares and carrier viability. Continental Airlines (NYSE: CAL) trades at close to $26. The price was at only $7.28 in mid-July 2008 when crude prices rose above $140.

Before that spike in the cost of oil and before the recession drove down passenger traffic and fares, Continental traded for $28 during the holiday flying season in 2007. The movement in the stock prices of AMR (NYSE: AMR) and Delta (NYSE: DAL) are about the same.

Douglas A. McIntyre

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