How the Airlines Put the Squeeze on Passengers

As airlines become more streamlined and profitable, flyers face even unfriendlier skies

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Jeffrey Milstein

Ninety-two flights sat on the tarmac at a U.S. airport for more than three hours.

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The fare-and-fee strategy has rewarded the industry with plump profits. Last year, Delta's net profit hit $1.6 billion on rising revenue and profit per passenger; the industry's pretax profit margin is up 8 percentage points since 2009. More important, carriers have developed the operational discipline to sustain these profit levels for years, as long as fuel prices remain manageable. "The legacy airlines used to be run like government agencies and not hungry businesses," says Pomeroy. "Those days are over." Indeed. In July, American racked up $349 million in earnings. Not a bad bounce back from being broke.

How did we get here? You have to go back to 2008, when oil reached $147 a barrel and jet fuel peaked at $3.89 a gallon. The domestic airline industry lost nearly $10 billion that year. Struggling Northwest Airlines landed in the arms of Delta, dooming Northwest's struggling Memphis hub; for Delta, it was so long, Cincinnati. In 2010, United united with Continental. Cleveland is getting nervous about being dumped. And US Airways' earlier merger with America West ended Pittsburgh's hub dream. In merging, the combined companies shrank their footprints--and their costs.

As of 2012, jet-fuel prices were roughly at the same level as in 2008, yet the industry made about $2.3 billion. A new age has dawned.

Lean, Mean and Nothing in Between

The mixed glories of the new aviation age are on full display at New York City's LaGuardia Airport, where I wait in the luggage-check-in line for a Spirit Airlines flight headed for Fort Lauderdale, Fla. The scene is chaotic as passengers lugging shopping bags, boxes and all manner of containers frantically attempt to repack so they can avoid bag charges.

The flight looks full despite a 6:50 a.m. departure. Spirit often flies vampire hours to keep its planes in the air as much as possible. How about a 10 p.m. flight to Plattsburgh, N.Y., from Fort Lauderdale, and a return at 1:30 a.m.? It's filled with Canadians escaping high-priced fares in Toronto.

On board, seating is tight. Spirit gets 218 passengers on its Airbus 321s vs. 159 for, say, JetBlue's Airbus 321s. The guy sitting next to me, in the middle seat, has his knees jammed into the seat in front of him. Because I paid $25 extra to get a window seat next to the emergency exit, there's no chair in front of me and I can stretch out my 6-ft. 2-in. frame. The first row goes for another $50. Advertising is pasted on the overhead compartments and tray-table backs.

Spirit has become today's most profitable airline by attracting passengers who otherwise wouldn't fly: low-margin customers the network carriers no longer desire. "The simplest way we describe the Spirit market," says the company's CEO, Ben Baldanza, "is the people who pay for the tickets themselves."

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