AMAZING SHRINKING AIRLINE INDUSTRY
By Joe Brancatelli
August 22, 2012 --If your flights are feeling a bit tight around the middle lately, it's not just that that airlines are shrinking the size of their coach seats or that you may have packed on an extra pound or two by scarfing one too many predeparture doughnuts.
Fact is, the entire commercial airline system is getting measurably smaller. Scheduled flights within North America this month are at their lowest levels in a decade, according to OAG, the global guardian of flight statistics. OAG estimates there will be around 21,400 fewer flights this month than last August and nearly a million fewer seats available to book. And this comes against a background of an airline system that has been shrinking relentlessly since the economic upheavals of 2008.
With the perfection of hindsight, it's clear to see that the oil-price shock—a barrel of crude hit its all-time high of $147 on New York markets in spring, 2008—and the collapse of the banking system later in the year left permanent scars on the nation's air-travel system. And it's no wonder: High prices for basic commodities (jet fuel accounts for upwards of 40 percent of the cost of running an average flight) and the deflation of the top end of the business (bankers and their financial kin make up a disproportionate part of the profitable segment of the airline market) is a toxic combination.
For what it's worth, Seat 2B did a decent-enough job covering events as they were happening in 2008. We detailed the fallout when oil crossed the $100-a-barrel threshold and four airlines collapsed in a week. We told you how to cope as the surviving carriers began slashing their route networks in the face of even higher oil prices. We warned you what would happen if bankers stopped flying. And even before the year ended, we assessed the damage.
But just as nobody expects the Spanish Inquisition, I'd be foolish to say that I thought we'd be sitting at our desks four years later talking about a permanently shriveled airline system and an army of business travelers who no longer fly. The fundamental remaking of the air-travel order has taken almost everyone by surprise.
Yet now that metaphorical cardinals Ximénez, Biggles, and Fang have barged into the conversation, it's wise to give some thought to why airline travel has shrunk so dramatically. There are at least three, no, four, elements.It's the economy, stupid
Data from the Bureau of Transportation Statistics shows an unmistakable pattern: When the economy shudders, the demand for air travel falls. And the larger the economic disruption, the faster the fall in travel. The number of passengers sank precipitously after the terrorist attacks in 2001 and again after the combination of oil and banking shocks in 2008.
The busiest month ever for air travel was July of 2007, when the economy was comparatively healthy and 63.4 million people stepped onto a domestic or international flight. We've never come close to that number again. In fact, 2007 was the high-water mark for flying as a total of 769 million passengers boarded a plane. Just 730 million flew in 2011. In other words, more than 3 million passengers a month have vanished.The business of airlines
It's hopeless and useless to try to calculate exactly how much capital the U.S. airline industry has burned through since 9/11. Depending on how you parse the numbers and navigate the red ink, it could be $50 or $100 billion or even more. Finally, most of the surviving airlines actually seem committed to earning a profit, and that means fewer seats and fewer flights.
Once upon a time, airlines funded unprofitable service as a way to shore up their hubs and their global flight networks. Not anymore. If a flight doesn't earn its keep on a stand-alone basis, it's a candidate for the chopping block. That's especially true when the high price of oil makes so many once-marginal routes a losing economic proposition. As a result, many short-haul domestic flights, mostly those operated with inefficient 37-to-50-seat regional jets, are being jettisoned. One example: Delta Air Lines (NYSE: DAL) is shutting down its Comair regional division next month. It purchased the carrier for more than $2 billion in 1999. Also vulnerable: very long-haul international routes (the high fuel burn makes those flights too expensive to operate) and routes that only have seasonal appeal.
The cutbacks have led airlines to record load factors (the number of seats filled) north of 80 percent, once considered unachievable in the airline business. But for all the flights and seats cuts, and even with over 80 percent of the existing chairs sold, there are very few instances of passengers not finding a ride. It attests to the massive amount of excess capacity that the airline industry operated over the years.Alternate agendas
The decline of regional jets means many smaller airports have already lost all their service. More small airports will lose flights in the month ahead. Business travelers who rely on those local aerodromes will have to substitute automobile travel for flights that no longer exist. But it's not just the lack of service that is leading many others to abandon flying. In the flight-laden Northeast Corridor between Boston and Washington, for instance, Amtrak is a viable alternative to the costly and weather-dependent air shuttles. The hassle factor
Many flyers have simply opted out of the system in recent years. Aggressive Transportation Security Administration searches at airport checkpoints, both by human agents and invasive technology, are partially to blame. The legacy carriers' switch to a la carte pricing and separate fees for everything from checked bags to seat assignments have made some flyers more reluctant road warriors too. And the rising cost of basic airfares, especially for last-minute, walk-up flying, is a turnoff for other once-frequent flyers. Send me an email
Finally, don't underestimate the impact of technology on our flying habits. A lot of business trips simply aren't necessary anymore, thanks to cheap and easy video calls or even more mundane things like email and PDFs. We might still need to get on a plane to press the flesh or to close a deal, but all of the other ephemera can now be handled more efficiently via electronic communications. And we get to sit in a comfy chair with soft cushions while we ignore the airlines.
ABOUT JOE BRANCATELLI Joe Brancatelli is a publication consultant, which means that he helps media companies start, fix and reposition newspapers, magazines and Web sites. He's also the former executive editor of Frequent Flyer and has been a consultant to or columnist for more business-travel and leisure-travel publishing operations than he can remember. He started his career as a business journalist and created JoeSentMe in the dark days after 9/11 while he was stranded in a hotel room in San Francisco. He lives on the Hudson River in the tourist town of Cold Spring.
THE FINE PRINT This column is Copyright © 2012 American City Business Journals. All rights reserved. Reprinted with permission. JoeSentMe.com is Copyright © 2012 by Joe Brancatelli. All rights reserved.