CRAF & the Airline Industry

OF MARGINAL AIRLINE INDUSTRY PROFITABILITY

The Civilian Air Reserve Fleet (CRAF) is entirely

dependent on the existence of a competitive, operationally

effective, and cooperative of a private airline industry in the

United States (US). Each of these factors is affected by

airline profitability. Profitability in the American airline

industry, however, has been an on an off affair since the

advent of deregulation in the industry at the beginning of the

1980s. Airline deregulation coincided with the advent of the

Reagan Administration and the most severe economic recession in

the US since the 1930s. As a consequence of the chaos

introduced by deregulation and the decline in traffic stemming

from the recession, profits in the industry plunged. By the

mid1980s, industry profitability had recovered, although some

individual airlinessome old and some newfailed to survive

(Collins, 1991). Since 1988, however, airline industry

profitability has once again been in steady decline (Collins,

The CRAF is heavily dependent on the major trunk carriers,

because these airlines are the ones most likely to possess the

type of aircraft required for CRAF support. Profitability

among the major carriers is even more dismal than that for the

industry as a whole. American Airl

. . .
2 Industry revenues have climbed steadily since 1987, from $25.4 billion in that year to an estimated $43.1 billion for all of 1991 (Collins, 1991b). Even the load factor has rises from 58.1 percent to 60 percent since 1987. The industry's operating margin, however, has dropped dramatically from 12 percent in 1987 to an estimated sixpercent for all of 1991 (Collins, 1991b). Steadily increasing fuel costs, personnel costs, and price discounting have eaten away at operational profits. Through 1990, the airline industry as a whole remained profitable. Industry net profit of $696.9 million in 1987, however, dropped 44.8 percent to $383.9 million by 1990 (Collins, 1991b). At the same time that increasing operating costs and price discounting was eroding operational profitability, depreciation on the new aircraft ordered by the airlines was increasing enormously (Standard & Poor's, 1991). Industry depreciation in 1987 was $1.5 billion, while estimated depreciation for all of 1991 is $2.5 billion (Collins, 1991b). Increased depreciation charges will push the industry as a whole
. . .

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Approximate Word count = 2981
Approximate Pages = 12 (250 words per page)

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