Posted on 09/20/2010 2:43:33 AM PDT by Willie Green
One of the most frequent questions I get asked during interviews is:
“Why is the airline industry doing so poorly?”
There can be a long list of answers to that question depending on if you are the passenger buying a ticket or the employee working for an airline.
The question actually has an easy answer. Contrary to what politicians frequently attempt to suggest, airfares on average, are simply too low to cover the ever increasing and required costs for safe air travel.
In 1990, the average passenger cost to fly one mile in the United States was 13.4 cents. Twenty years later, the cost was only 12.7 cents per mile. During the last two decades, the average US domestic airline passenger fare measured on a per mile cost basis stayed in a range of 12.0 cents to 14.6 cents.
Note: This is revenue to the airlines and does not include government taxes, fees, security charges etc. that are now approaching 30% per passenger fare.
Comparing 2009 with 1990, the cost of air travel decreased by 9.9% while the Consumer Price Index for inflation increased by 64.1% (cost for air travel excludes government taxes and fees).
If airline passenger travel costs had kept up with CPI inflation over the last 20 years, the average fare to fly one mile in 2009 would have been 22 cents per mile, a 59% increase over the actual cost.
Here are a few staggering statistics for the US airline industry:
* In 1990 there were 460 million passengers. In 2009 there were 704 million passengers.
* In 1990 there were 546 thousand airline employees. In 2009 there were 536 thousand airline employees.
* The US airline industry has lost money in 12 of the last 20 years and accumulated a net loss of approximately $29 billion (excludes airline bankruptcy and reorganization write-downs).
* The price of jet fuel for 2009 was at a four year low and still 240% higher than the airlines paid in 1990.
* Since January 1, 1990, there have been 98 US airlines file for bankruptcy.
After twenty years of on and off airline industry growth, there are now two percent less airline employees responsible for a 53% increase in passengers. The numbers make it easy to see why there are so many complaints against the airline industry.
Sometimes the old cliché: “You get what you pay for”, has true meaning.
The chart below provides average passenger revenue per mile for US airlines, Commuter rail, and Intercity/Amtrak travel as compared to the Consumer Price Index from 1990 to 2009.
Robert Herbst is an independent airline industry consultant. He is the founder of AirlineFinancials.com which provides airline industry analysis and commentary for major US carriers. In addition to his consulting work, Mr. Herbst was a commercial pilot from 1969 until January 2010. His aviation experience and financial background provide a unique analytical perspective into the airline industry.
Although fares for local transit have kept pace with the CPI,
Amtrak revenues have dramaticaly increased while the airlines have decreased!!!
In order to remain profitable, the airlines will HAVE to reduce the number of inefficient "short-hop" flights they offer (less than 500 miles) where passenger rail can provide more cost effective service.
That is another reason why we must upgrade the passenger rail capacity: to accommodate the increase in consumer demand as the airlines start reducing service!!!
Contrary to this article, the cost of the routes I fly has doubled in the past ten years.
There is no least chance of increasing rail service on the San Francisco to Seattle Amtrak route, much less the Baltimore to San Francisco route.
The nice thing about airlines, as opposed to... oh, I dunno... trains, is that airlines are flexible, and able to change routes and compete with one another on a moment's notice. They can become more and more efficient, as market pressures drive costs ever downward. Free enterprise in action.
One way they have become more efficient is because they are flying full aircraft. I fly a few times a year, and it has been years since I have seen an empty seat in my row or on the rows around me. Twenty years ago, whenever I flew with my wife, we would always get the window and aisle, and the middle seat would inevitably remain unsold, so that would be a freebie. You can't get away with that sort of thing today... The airlines have tailored their routes and prices to the nth degree, and sell every seat.
This is how free market capitalism, red of tooth and claw, serves the consumer. I travel a lot more than I would if prices were 30 cents a passenger mile instead of 10 cents. Air travel is a great value.
There is no least chance of increasing rail service on the San Francisco to Seattle Amtrak route, much less the Baltimore to San Francisco route.
Airline travel will remain the preffered method for longer distances such as SF/Seattle (675 miles) and SF/Baltimore (2835 miles).
But for regional trips between cities less than 600 miles apart, passenger rail is becoming much more competitive, especially as the cost of aviation fuel continues to rise. Airlines just can't travel those "short-hop" distances efficiently.
I remember 20 years ago, I used to drive a lot. On trips of 300 to 600 miles, the cost of driving alone and the cost of flying were pretty much the same, and it came down to a matter of schedules and convenience. Nowadays, air travel is so cheap the cost of a ticket won’t even cover the gas you car will burn, much less all the other operating expenses.
I can fly wherever I want at great prices... What's not to love?
Air travel is a great value.
The airlines are losing money providing you with that "great value".
That's why they're going to have to stop offering you money-losing flights.
And those routes will become money-MAKING routes for Amtrak!
(which can operate more efficiently at the shorter distances.)
The Earth will spiral into the sun before Amtrak is profitable. Did you forget, Willie, that Amtrak is sucking from the government teat?
One thing to remember, though, is that England is a very small country compared to the U.S. The railroads and canals were able to complement each other because the distances traveled weren't long enough to put the canals at such a big disadvantage like you saw here in the U.S. during the 19th century. It's one thing to move freight by barge from Buffalo to New York City, but once the industry moved to places like the Midwest the railroads became the dominant form of transport.
You’re absolutely right. But the flip side of this is that the U.S. airline industry has basically become “Wal-Mart in the skies” as these airlines reduce the quality of their service in an attempt to keep their fares as low as possible.
… the cost of driving alone and the cost of flying were pretty much the same …
20 years ago I was a cab driver. It wasn’t unusual for people to take a cab from the Hampton Roads area to such places as Miami, New York or Atlantic City. The cost of the cab wasn’t much different than the cost of flying (with 2 or 3 people) and a lot more convenient. Even travel time was comparable.
If flying you’d take a cab to the airport (or trust the airport parking lot to provide security for your car), wait in lines, wait for baggage, take another cab from your destination airport to where you were going. If a longer flight it include changing planes at a hub airport. A taxi provided curb to curb service and your baggage accompanied you the entire time.
Somehow, I think the problem with the airline industry, is probably linked to gov’t intervention....I might be wrong... but me thinks the gov’t stinks....
I am all for letting airlines drop unprofitable routes. Let the industry decide what airports to serve and when. Getting government involved only leads to stupid decision making.
If the airlines drop service to certain airports, other modes of transport will pick it up. Maybe intercity buses on the short term, maybe trains. Whatever. As long as everybody competes on an equal footing, the customer wins.
BTW, intercity buses have gotten brutally efficient, as well. You can get from NYC to WDC for 15 bucks, with several departures daily. That doesn’t come close to covering your gas if you choose to drive.
You think US airlines have become stripped-down, try flying Ryanair in Europe. Of course, Ryanair will fly you across Europe for $50, so you don't catch me complaining. If the seat is uncomfortable, I am cushioned by my fat wallet.
Actually Ryanair is considering adding standing room to the back few rows of their airliners. You would strap in against a wall for takeoffs and landings, and stand all the way. Not a good choice for NY to LA, but for London to Barcelona, it wouldn't be too bad... They are also going to start charging people to use the in-flight bathroom...
I think a market exists for a big turboprop aircraft capable of flying the 300-600 mile routes efficiently. The turboprops can cruise efficiently at lower altitudes and can spend less time in climbing and decending routes. It might add 20 minutes to a 80-minute flight, but the fuel cost would go way down.
I think this is a setup article for the airline industry’s nickel and diming everyone and fare increases coming.
Spare me......I travel frequently for my work, and we nickeled and dimed to death to make up the difference. Baggage fees, charges to board early, charges to buy additional miles, fees to redeem miles....any way to make a buck. Its just a matter of time before they put coin machines on the lavatory doors.
Air is a private, competitive industry, unlike Amtrack’s union, hack contractor, politicians hiring taxpayer money pit.
Average industry price means nothing in private industry( Not that you would know Willie ). What matters are the innovators that push price down, like Southwest, or Jet Blue. The other airlines are the losers, whom will or should be put out of business. ( As in Honda, Toyota in cars, or what Dell did to Compaq in PC’s )
Willie Green, Freerepublic’s resident classical economic fascist.
BTW, intercity buses have gotten brutally efficient, as well. You can get from NYC to WDC for 15 bucks, with several departures daily.
Buses are subject to the same heavy traffic conditions in the Eastern Corridor as automobiles. And I'd be very wary of the driving skills of some of the drivers they hire.
IMHO, it's both faster and safer to travel on the seperate railway right-of-way. And the extra passenger comfort/space is worth the slightly extra difference in fare.
Thanks to BP and other foreign developers, we now know there are zillions of barrels of crude right under our feet.
Why can't we have it? (never ask a question where you don't already know the answer)
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