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Wide of the Mark

October 02, 1988

Your Sept. 4 story, "Airline Profits are Sky High, But Turbulent Economy, Rising Fuel Costs May Cloud Industry's Future," seriously misses the mark. A fuller analysis would conclude that while earnings have improved this year, they have a long way to go to make up for the poor performance of earlier years.

For starters, your analysis focuses on an examination of operating profits. Operating profits do not take into account such items as debt servicing which, for major companies in the airline industry, are very considerable. Furthermore, net profit margins in the industry, even for those carriers reporting record profits, generally remain below the average 5% profit margin reported by U.S. corporations generally.

More importantly, the information about fuel costs and competition was misleading. Your contention is that lower fuel costs and less competition have led to higher prices and better profits. In fact, for the last four quarters fuel costs have increased 31%, 37%, 15% and 2%. These higher costs were passed on in the form of modest fare increases. It is worth noting that although fares have increased some in the last year after steady decreases, they still remain well below 1981 levels.

GABRIEL PHILLIPS

Washington

The writer is executive vice president for the Air Transport Assn.

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