The Airlines and the Volcano: “Losses” Don’t Mean Losses (New Yorker)
The A.P. reported yesterday that the grounding of flights in Europe for the
past five days (thanks to the cloud of volcanic Icelandic ash) has already led
to a billion dollars in “airline losses.” That number comes from the
International Air Transport Association, which says the airlines are losing at
least $200 million a day and perhaps as much as $300 million.
Those numbers are grim, especially when you consider that most airlines are
already in a pretty fragile state due to the recession. But they’re also
overstated, because what the A.P. (along with most other news stories on the
subject) doesn’t make clear is that the “losses” don’t represent actual money
out the door, but rather lost revenue. Those are two very different things.
There’s no question that the break is costing the airlines substantially,
since they have to continue to pay their fixed costs (salaries, maintenance,
lease payments on their jets, etc.) while earning nothing. But the lost
revenue is offset, at least to some extent, by the fact that the airlines
don’t have to pay any of the costs of actually flying the planes–such as,
above all, fuel. And to the extent …
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