Airline CEO = Rocket Scientist

Finally, someone gets it.

Delta Airline’s CEO, Richard Anderson, announced to reporters that airlines needed to raise fares as much as 20% just to offset increased fuel costs.

Wow… ya think!?!?

The bigger question, of course, is which Airline bigwigs have the intestinal fortitude to be the first to bring such an increase to bear.

Never forget, a substantial part of successful leadership involves sticking your neck out and taking well-thought and necessary risks. Having said that, I’m not sue how risky this “announcement’ really is. Regardless of which airline boss takes the initiative, all other carriers will follow suit mosh kosh.

Here’s a layman’s analysis: Airlines — even when wildly profitable (huh??) — operate on net earning margins that hover around 2%. TWO PERCENT. Now, they obviously have big-time depreciation in there, what with all those aging aircraft, but nonetheless, two percent doesn’t provide much cushion to weather a storm.

So, continuing on… fuel typically makes up around 25% of most airlines’ costs, when in pursuit of that elusive 2% mentioned above. Jet fuel has gone from $1.85 a gallon last March, to $3.50 per gallon today.

That’s a 90% increase in one year.

Now, true, airlines have already been raising prices this year; but it’s been a “death by a thousand cuts,” adding a couple of bucks here, a couple there. Someone needs to realize that, strangely enough, when costs increase, prices must do so also. This isn’t “rocket surgery,’ folks. It’s simply leadership. Good leadership.

Of course, another significant issue is airlines’ outrageous labor costs (40%+ of total expenses), “fueled” by the idiot pilots we discussed in earlier blog posts; however, this post is about “fuel,’ so I’ll leave that be.

For now…

Cheers,

KB

Kevin Berchelmann
http://www.triangleperformance.com/

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