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Comment by strommen | Hacker News Reader

Seriously? They're using airlines as the example of too-profitable companies? The industry was in total shambles for nearly an entire decade after 9/11. It's no wonder that they're hesitant to lower their margins.

I truly can't imagine an industry that would be more difficult to run a company in:

* Everything is highly regulated.

* The dominant expense is a highly-volatile commodity controlled mainly by unpredictable/hostile countries.

* Your product has been totally commoditized by airfare-pricing websites.

* People get angry at your company when the weather is bad.

* Use of your product is inextricably linked to the abhorrent process of airport security.

* There is the continual potential of a terrorist attack decimating your sales overnight.

Any decently smart airline is hoarding some profits, because if they don't they will go bankrupt the next time fuel costs spike or something scary happens during a U.S. flight.

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Out of that list of reasons the airline industry would be so profitable, some do point toward healthy profitability in the form of risk premium (profit which can be used in a corresponding volatility buffer), but some support factors of pathological profitability.

For instance, the high degree of regulation has costs, but it also makes it far more do difficult for competitors to enter the market. Regulation is especially profitable in an industry like aviation where the major airlines are known to exert a great deal of control over their regulatory body, even compared to other industries.

Commoditization can also increase profits, by providing another barrier to entry; when flights are compared (automatically) by price, new firms have less opportunity to distinguish themselves and the economy of scale and start-up costs are especially painful for a hypothetical new airline.

In a working economy, competition is the check against profiteering; all of these factors making it difficult to run an airline ensure that nobody else can start, regardless of how profitable it would be to do so.

Yeah, there are plenty of regulations that companies rail against that were created to keep people OUT of competition. If you can't create a natural monopoly, create a bureaucratized one.

> they will go bankrupt the next time fuel costs spike

Commodity futures are a healthy market. It's easy to hedge the price of oil and take that completely out of your profit/loss calculation. Any airline who chooses not to is speculating on the price of oil, much like a hedge fund.

> the continual potential of a terrorist attack decimating your sales overnight.

They can probably buy insurance against that as well. The lease-holder of the WTC had an insurance policy that paid $3.5 billion per event. I forget if the attacks were considered one event or two.

> Your product has been totally commoditized by airfare-pricing websites.

That American made $24 billion last year without passing on anything to consumers shows that that is wrong. Pricing websites are under full control of the airlines at this point.

> That American made $24 billion last year without passing on anything to consumers shows that that is wrong. Pricing websites are under full control of the airlines at this point.

You misread the article. That actual quote:

> The profit bit of the picture, though, has changed a lot. Last year America’s airlines made $24 billion—more than Alphabet, the parent company of Google.

Which is a ridiculous comparison. They're seriously comparing an entire industry to one company? If anything, the complaint should be that Alphabet makes too much money.

I totally read that the first time as "American Airlines", thinking it was a single airline that made more than Alphabet. What the hell does it mean to compare an industry to a company in another field?

Yeah that doesn't really make any sense. Comparisons to unrelated things can be helpful just to get a sense of how much money that is, but it doesn't do that in this case.

Yeah I thought that comparison was a little suspect

Savings are passed on to consumers, in part. Airline fares are near all time lows.

You can't directly compare fares because there are more people on the flights (thanks to all those mergers there is a lot less route competition and flights are now often at capacity), there are more seats per plane (remember leg room?) and they charge for things that they didn't used to (luggage, having a reserved seat, food, etc).

The point is that gas prices collapsed last year but ticket prices did not drop.

Why should the price of a ticket be neccessarily bound to gas price? Wouldn't most people pay the same price regardless of gas price?

When gas prices went up fares followed. When gas prices went down fares stayed the same (and profits soared).

The point of the article is that there is not enough competition. If there were more competition some of the profits would go to consumers instead of being hoarded by the companies.

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