Things are looking up for U.S. airlines
After more than a year of slumping demand and sinking revenue, the nation’s airline industry is beginning to show signs of a recovery, with modest increases in revenue and forecasts of growing demand this year.
The indications of a recovery, documented in recent government and airline reports, come after 14 straight months of declining revenue for the nation’s airlines and passenger traffic totals that have been dropping for almost two years. Airline experts have blamed the drop in passengers on the recession, high unemployment rates and deep cuts to corporate travel budgets.
The news may be a mixed blessing for airline travelers. As demand increases, airlines are likely to gradually raise airfare rates, experts say. If demand remains strong, the airlines are expected to add more flights and new routes to meet the demand.
Although the forecasts and analysis show that airline trends are moving in a positive direction, industry experts say the airlines have a long way to go before they can expect revenue and passenger traffic numbers to return to pre-recession levels.
In January, passenger revenue for domestic and international flights rose 1.4% compared with the same month in 2009, according to the Air Transport Assn., the industry trade group that represents the country’s largest airlines. And airline cargo traffic for December jumped 17% over the same month in 2008, according to the group.
“The modest uptick in passenger revenue and the solid increase in cargo volumes are promising signs that air transport demand may be at the beginning of a long-awaited recovery,” association President James C. May said.
The group’s report was released a week after an independent equity research company, Majestic Research Corp., released a study predicting that large, traditional airlines such as US Airways, United Airlines, American Airlines and Delta Air Lines may see passenger revenue increase as much as 9% in the first quarter of 2010 compared with the same period in 2009. The research firm based its analysis on proprietary data collected from airline ticket vendors and by surveying ticket prices on the Internet, among other techniques.
Majestic also estimates that discount airlines such as AirTran Airways, JetBlue Airways and Southwest Airlines will see revenue increase as much as 13% in the first quarter over a year earlier.
The projection of higher revenue for discount airlines may not be surprising, considering that such carriers are already reporting more passenger traffic. In January, Southwest reported an 8.3% rise in passenger traffic from a year earlier, while JetBlue reported a 5.9% increase. By comparison, the nation’s largest airline, Delta, reported a 5% decline.
The Majestic report said the improving numbers were a sign that demand for business travel was returning. Business travelers represent the most profitable passengers for airlines because they typically spend more on fares.
The Majestic report said leisure travel began to recover last summer as families took advantage of discounted airfares and cheap hotel rates.
Still, airline analysts note that the industry has been in a slump since spring 2008, and a return to pre-recession revenue and passenger demand, if it does happen, could take a while.
Jan Brueckner, an economics professor at UC Irvine, said the recession might have taught many businesses that they could spend less on travel by relying instead on video conferencing and other options.
“It’s uncertain if the foundation of business travel has been undermined,” he said.