Economics of the end of growth in passenger air

Page 1 of 212>
November 7th, 2012 at 7:08:24 PM permalink
Pacomartin
Member since: Oct 24, 2012
Threads: 1068
Posts: 12569
The Airline Deregulation Act of 1978 was America's response to the new generation of high speed passenger trains in Europe that were being introduced around the same time. It was felt that given the distance involved in domestic travel between American cities, that loosening regulations on air travel was more appropriate.

Today, the only names of airline corporations from before this Act are Delta, American, United, and USAirways (which includes post deregulation companies). American and USAirways will probably merge at some point in the future. The legacy airlines are making their money primarily on international travel, and domestic routes are almost all designed to allow for the possibility of boarding an international route. As a result, most of the growth has been in large hub airports.

As the table show, growth in passengers on commercial airlines (domestic and international) has largely stalled since 9/11. What is the impact on economic growth and transportation issues in this country? Can this pause continue for another decade? Will ever increasing electronic communication replace physical travel?

What about the cultural impact? Americans are known for being culturally isolated compared to Europeans. Most 25 year old citizens of the UK have been to Germany, Italy, France, and Spain.

Fiscal Period: Enplanements on Commercial Airlines
2011/2013 : 726,007,934
2010/2012 : 713,776,556
2009/2011 : 698,003,028
...
2000/2002 : 710,299,349
...
1996/1998 : 621,613,161
...
1990/1992 : 499,070,998
...
1980/1982 : 310,401,357

NOTE: Most airlines report traffic for both enplanements, deplanements, and staying on a plane while it lands at an airport. So if a passenger has a connection, the airport raises it's count by 2 . If someone sits on an airplane while it lands at an airport, the airport raises it count by 1.

The FAA refers to the number of enplanements in a year, and ignores deplanements and sitting on an airplane while it lands at an airport. So the number 726 million is higher than the number of trips, since a passenger could easily enplane 4 times in one trip if he has a connection both directions.

Since many airlines are eliminating "point to point" flights between two smaller airports, the probability of a connection grows accordingly as more flights pass through large hubs. So the stall in number of enplanements may also equate to fewer trips. So given the population of roughly 315 million and most round trip flights having 2 to 4 domestic enplanements, that total is little more than 1 round trip flight per year (although babies don't fly as often). I think that many people believe that air travel is much more common. Given that there is a sizeable community that flies many times per year, we must assume that there is a large group of people who do not fly at all in a given year.
November 8th, 2012 at 11:41:22 AM permalink
AZDuffman
Member since: Oct 24, 2012
Threads: 135
Posts: 18136
Aviation is a bad business, always has been. Unions are killers, fuel prices spike wildly, a small economic slowdown and load factor drops. And it is a business where the marginal dollar is so important. One seat can mean difference between profit and loss on a flight. CNBC showed and AMR flight where they made $250 or so for the flight!

The then-chairman of AMR a few years back told employees to put their 401(k) elsewhere. Looks like he was telling the truth.

It is stated that if you take commercial aviation since the Wright Brothers in aggragate the retained earnings are negative.

And air travel has changed, 50s, 60s, even the early 70s it was almost a treat to fly. Today flying is a step above a Greyhound Bus. Add in the TSA and you are treated like cattle from the moment you walk in the door.
The President is a fink.
November 8th, 2012 at 12:31:59 PM permalink
rdw4potus
Member since: Oct 24, 2012
Threads: 10
Posts: 147
Quote: AZDuffman

The then-chairman of AMR a few years back told employees to put their 401(k) elsewhere. Looks like he was telling the truth.


This is always good advice, but especially in the airline industry. Otherwise the reason you're laid-off will also be the reason that you have no retirement $$...
I'm not wearing any pants, film at 11
November 8th, 2012 at 5:48:13 PM permalink
Pacomartin
Member since: Oct 24, 2012
Threads: 1068
Posts: 12569
Quote: AZDuffman
Aviation is a bad business, always has been. Unions are killers, fuel prices spike wildly, a small economic slowdown and load factor drops. And it is a business where the marginal dollar is so important. One seat can mean difference between profit and loss on a flight.


So what does that mean for transportation in this country. Transportation was responsible for most of the great fortunes of the 19th century. What if another decade passes, and we are still at roughly 1 round trip via airplane per capita per year in this country. We have no trains, and we have no elaborate bus network catering to the middle class (like Mexico). Gasoline prices continue to go through the roof. Intercity automobile travel is becoming prohibitive. Is it all going to be skype?


November 8th, 2012 at 7:04:34 PM permalink
AZDuffman
Member since: Oct 24, 2012
Threads: 135
Posts: 18136
Quote: Pacomartin
So what does that mean for transportation in this country. Transportation was responsible for most of the great fortunes of the 19th century. What if another decade passes, and we are still at roughly 1 round trip via airplane per capita per year in this country. We have no trains, and we have no elaborate bus network catering to the middle class (like Mexico). Gasoline prices continue to go through the roof. Intercity automobile travel is becoming prohibitive. Is it all going to be skype?




Ground freight will remain train and truck. Passenger will keep being car and planes. Gas is not so high yet. I will keep driving vs flying for less than 500 miles.
The President is a fink.
November 8th, 2012 at 11:25:00 PM permalink
Pacomartin
Member since: Oct 24, 2012
Threads: 1068
Posts: 12569
Quote: AZDuffman
Ground freight will remain train and truck. Passenger will keep being car and planes. Gas is not so high yet. I will keep driving vs flying for less than 500 miles.


It doesn't seem that this plan will remain viable in another 20 years without some growth in the airline industry. Travel trips over 500 miles need to be part of the fabric, and at less than exorbitant cost.
Southwest aircraft trip length averages 697 miles and average trip for a passenger is 943 miles.

It seems like a decade ago most airlines had given up on point to point routes, and they settled on trying to plug a smaller urban area (under 1 million) into three hubs around the country. Then it became two hubs, and now they are settling on flights to the nearest major hub. The economics are now just to get you into the network, and then you have to fly around it to get to your destination, even if it takes you a long time.
November 9th, 2012 at 4:51:52 AM permalink
Fleastiff
Member since: Oct 27, 2012
Threads: 62
Posts: 7831
I don't think its cultural isolation. People in the UK fly to a foreign country to get a vacation. People from the USA often just fly to some warm spot in the USA.

I agree that flying now is one step above Greyhound and getting worse.

The only salvation on the horizon is Free Flight.... direct point to point navigation instead of FAA mandated routes.

European planes are always short haul low noise but American flights vary.

Load Factor and pricing of seats is absurd. Too many low cost operators are low safety operators. Safety margins are eroding. Mechanics do have a stranglehold but so what? Airlines operate perpetually in bankruptcy or on the verge of it.

Air taxis are booming particularly those who float their inventory.
November 10th, 2012 at 10:56:04 AM permalink
Pacomartin
Member since: Oct 24, 2012
Threads: 1068
Posts: 12569
Quote: Fleastiff
I don't think its cultural isolation. People in the UK fly to a foreign country to get a vacation. People from the USA often just fly to some warm spot in the USA.


UK is undergoing the same sort of stagnation in their flights. They are down 6.5% from 5 years ago.

Of course, the bulk of their flying is international. You can get a train from London to Edinburgh (5 hours each way) for £60 ($95) one way. That's cheaper than New York to Boston (5 hr, 20 min) for $122 each way

England proper (leaving out Scotland, Wales, and Northern Ireland) is about the same area as New York State. But while NY State has 19.5 million people, England has 53 million.

But at least they have plans to upgrade their rail service. Other than flights to Northern Ireland, they should have little or no need to fly domestically in 20 years.
November 10th, 2012 at 11:31:33 AM permalink
AZDuffman
Member since: Oct 24, 2012
Threads: 135
Posts: 18136
Quote: Fleastiff

The only salvation on the horizon is Free Flight.... direct point to point navigation instead of FAA mandated routes.


How many routes does the FAA mandate? I know big airports like JFK have "slots" but if I wanted to start a daily flight from Witchata to Vegas is there a law stopping me? Have we passed a version of the "Anti Dog Eat Dog" bill?

Quote:
Load Factor and pricing of seats is absurd. Too many low cost operators are low safety operators. Safety margins are eroding. Mechanics do have a stranglehold but so what? Airlines operate perpetually in bankruptcy or on the verge of it.


Economics is the killer here. Marginal cost to fly one more passenger is very low, maybe $10 to sell the ticket, handle the bag, paperwork, and whatever smal food you are offered. Load factor is everything.

It is just a crappy business. And getting worse. I remember way back in the 1980s people talked about how great it was to work for an airline. USAir, and surely others, required stewardesses to take a six week prep school (sort of like dealer school) just to be allowed to be hired. The job carried a certain prestige. Today it is just another place to work unless you are a pilot.
The President is a fink.
November 10th, 2012 at 12:03:07 PM permalink
Pacomartin
Member since: Oct 24, 2012
Threads: 1068
Posts: 12569
Quote: AZDuffman
How many routes does the FAA mandate? I know big airports like JFK have "slots" but if I wanted to start a daily flight from Witchata to Vegas is there a law stopping me?


The slot management rule only applies to New York Area airports, Washington Reagan, and formerly Chicago O'Hare.

To help manage airport congestion, airlines operating at four U.S. airports Washington's Reagan National and the three major New York City area airports must obtain operating authorizations called slots from FAA to take off or land. Chicago O'Hare was one of the airports so managed in 1969, but slot controls expired in 2002. Chicago O'Hare has shown no growth in the last 15 years,
but in 1982, the City of Chicago purchased Midway Airport from the Chicago Board of Education for $16 million. Chicago Midway is one of the faster growing airports since Southwest airlines began operations in 1985.

Airlines operating out of Reagan National also may not operate flights beyond a 1,250-mile perimeter without congressional approval. In addition to the 24 flights (12 round trips) previously approved, Congress recently authorized 16 more beyond-perimeter flights (8 round-trips) at Reagan National flights that the airport authority fears will adversely affect Reagan National and the authority's ability to continue servicing its debt.

Reagan National is routinely operating below 67 hourly takeoffs and landings the maximum number authorized in any one hour mostly because general aviation or other unscheduled aircraft operations decreased substantially after new security restrictions were imposed following the September 11, 2001, terrorist attacks

The rules, however, in effect, allow some existing airport capacity to go unused, and this capacity is therefore unavailable to other airlines because airlines are not required to schedule a flight for each of their slots, but instead are only required to use their slots 80 percent of the time.
Page 1 of 212>