Futher airline consolidation, fewer flights serving small communities and the growth of ancillary fees are likely to continue in the US commercial aviation industry as carriers adjust to market forces, says a new report by the US Department of Transportation's (DOT) Office of Inspector General.
The report, released on 24 September, sums up US airlines' performances from 2008 to 2011 and also captures trends in the industry since 2000. It notes that rising fuel prices and decreasing travel demand have shaped the industry in recent years.
"While airlines spent only 10% of their operating costs on fuel in 2001, by 2011 this had risen to 35% - near the all time high of 40% in 2008," says the report. As a result of higher fuel prices and other factors, more than 50 US passenger and cargo carriers have filed for bankruptcy in the last 12 years.
While fuel prices have gone up, the report points out that airlines have largely maintained their non-fuel operating costs. "As a result, the rising and volatile price of fuel now has a much greater influence on whether the airlines add or cut a flight and how frequently fares need to be adjusted," it says. Besides fuel prices, travel demand has also dipped as unemployment and costs of living grew.
Among the 51 carriers that have filed for bankruptcy protection since 2000, seven did so in the last 12 months: American Airlines, its regional affiliates American Eagle and Executive Airlines, Pinnacle Airlines, Colgan Air, Ryan International and World Airways.
Airlines have rapidly consolidated in the last decade as they seeked to be profitable again, the report points out. "In 2000, 10 airlines accounted for slightly more than 90% of available seat-mile capacity in the United States. By early 2012, those 10 airlines, through mergers, were reduced to five airlines controlling about 85% of the domestic passenger market," says the report. The five airlines are American, Delta Air Lines, Southwest Airlines, United Airlines and US Airways.
Of the five airlines, US Airways is seeking to merge with American, which would reduce this number to four airlines if the merger takes place, notes the report.
Airline consolidation has led to cuts in flights operated out of certain airports as airlines combined their operations. For example, operations at Cincinnati and Memphis airports were cut by 63% and 36% respectively between June 2007 and June 2012 following the merger of Delta and Northwest Airlines.
Another effect of consolidation is a cut-back in flights, especially those operated by smaller aircraft, says the report. This has led to more packed flights and higher load factors and revenues.
With fewer free seats, airlines have been able to increase fares, especially on short-haul flights that have been significantly reduced.
"Overall, the industry attempted 22 fare increases in 2011, of which 11 were successful. In 2012, airlines have already attempted eight fare increases, four of which have been successful," says the report.
Besides keeping fares high, airlines have also boosted ancillary revenues through fees for checked baggage, food and seat assignments among others. Baggage fees made up $2.7 billion in additional revenue for airlines in 2011, says the report.
Between 2000 and 2010, passenger fees have grown by $19 per round-trip, or from $3 to $22, it adds, citing industry association Airlines For America.
Despite higher fares and more ancillary fees, the report says passengers have benefitted from "some improvements in the overall flight experience". Overall, airlines' on-time performances have improved and there are fewer flight delays and cancellations.
At the 55 airports tracked by the Federal Aviation Administration, the percentage of on-time arrivals improved to 77% in 2011 from 71% in 2007. In the first five months of 2012, on-time performance was the best since 1988 with 84%. Delayed or cancelled flights have fallen to 23% in 2011 from a peak of 29% in 2007, says the report.
Economic and operating challenges look to be "the new norm" for the airline industry, it adds. "Although the industry is still in transition, the data in this report suggest that some of the most significant trends of recent years... may continue for the foreseeable future as airlines further improve their adaptability to changing market forces."