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When the Airline Industry Can't Get Worse, It Does


Will investors and passengers ever see progress?

For investors, the airline industry continues to be a sore spot. US airlines have lost more than $54 billion over the past 10 years, a 23.4% drop.

Houston-based money manager Ryan Krueger says it's the "one business into which [he's] never invested a penny."

And money manager Vitaliy Katsenelson calls the airline industry "one of the worst businesses in the world," and points out that "as an industry, it has lost more money than it has ever made."

It's not always their fault. Continental Airlines (CAL) just announced that the back-to-back snowstorms last month in the New York area cost the carrier $25 million in lost revenue.

The storm losses prompted Jesup & Lamont analyst Helane Becker to lower her first-quarter earnings-per-share estimates for Houston-based Continental to 6 cents apiece, from the previous 19 cents.

The weather cost US Airways (LCC) $30 million. Becker also cut her first-quarter view for US Airways to a loss of 53 cents a share, compared with a prior estimate of a loss of 34 cents a share.

"I usually build something into my models for storms in the first part of the year, but nothing like $25 million," Becker told Reuters.

To compound their troubles, Continental and US Airways, as well as American (AMR), United (UAL), and Southwest (LUV) are engaged in protracted negotiations with unions representing pilots, mechanics and ramp workers, and flight attendants.

Airline workers "don't have a strong hand, but they seem to be getting close to the boiling point," airline labor expert Kit Darby of Aviation Consulting told USA Today. "It's like in the movie Network: They're as mad as hell, and they aren't going to take it anymore."

This will be just one more problem for an already overburdened industry. "The airlines aren't in a particularly good financial situation to be facing additional labor costs, which is what the unions, understandably, are demanding," says consultant Carlos Bonilla at AirlineForecasts in Washington.

The one group of aviation workers that won't be going anywhere is the air-traffic controllers, who, as government employees, are forbidden to strike.

However, if they were to walk out, as they did in 1981, violating a law enacted by Congress in 1955, the positions could be filled by any number of young children, who, as this recording from the JFK tower demonstrates, seem to be eminently qualified to do the job:

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Finally, while US carriers continue to disappoint the traveling public, Russian airlines have spent the better part of the past year doing everything they can to win over customers.

Aeroflot's CEO, Vitaly Savelyev, said all new stewardesses would be "very striking, very eye-catching girls," who would be outfitted in newly designed uniforms.

"Psychologists have told us that the current color evokes revulsion in passengers," he told the newspaper Vedomosti.

Unlike airlines here in the States, where the main thing evoking revulsion in passengers simply seems to be the service.

Check out Hoofy & Boo's recent report on Airline Profits:

No positions in stocks mentioned.
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