A:

Weather changes may result in canceled flights and substantial losses for both consumers and the airline industry. Business travel to meetings and conferences brings substantial revenue to the major airlines and regional carriers, but canceled events are often not rescheduled. As a result, revenue lost due to adverse weather is unlikely to be replaced. Winter storms in 2014 may have cost airlines as much as $200 million.

Weather costs depend on a variety of factors. Fixed costs of every flight, such as crew compensation, must be paid even if a flight is canceled. Some possible causes of airline costs include the length of flight delays, whether passengers were reimbursed and additional pay for flight crews. These costs are also usually irreplaceable and result in a loss. Investors considering the airline industry should be aware of weather-related investment risks.

Although airlines budget for weather-related losses, big costs from unexpectedly large storms may significantly impact a company's quarterly earnings reports. In 2011, for example, Delta announced a reduction in earnings of $45 million due to adverse weather conditions. Almost 5% of that winter's flights were canceled; this rate occasionally increased as high as 20% nationally. This cancellation rate was higher than the five prior winters and was around double the previous year. Thousands of passengers were displaced and required alternative transportation. The hit was devastating to airline profits that season. Airline shares saw falling prices, and investors in the major airlines sustained strong losses. In 2014, major storms during the winter caused nearly $6 billion in total airline industry losses and disrupted travel for 9 million passengers. These storms, largely unexpected, consumed weather budgets and dramatically hit airlines' profits.

The financial toll of harsh weather results from several factors. Grounded flights, if filled with passengers, risk significant fines if they wait for more than three hours. Rescheduled flights force airlines to pay again for the same fixed expenses without receiving additional revenue. Often, flight crews are stranded and must be paid the same rates even though they are not working. If passengers reschedule, they may choose a different airline and take their business away as a result of cancelled flights.

Travelers also carry significant losses from weather delays. Many tickets are non-refundable, saving revenue for the airline industry at a cost to passengers. Adverse conditions at a major airport may shut down all operations and create a significant glut of passengers during major storms. Airlines may need several days of operations to accommodate the passengers from a single storm.

The additional operations costs factor heavily into weather-related costs. As much as $167 million per day may be lost in a major hub for business and leisure travel such as New York City. These losses in productivity, operations and additional consumer spending hit investors and the public during adverse weather conditions.

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