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US Air Travel: Shrinking Capacities, Higher Fares The Way of The Future

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(Photo: Stock.xchng)
(Photo: Stock.xchng)

BUSINESS

  • Airplanes packed, fares constantly going up
  • Fuel prices contribute to more than one-third of total operating airline budgets
  • US Airline growth should double in next two decades but prices to go up

The number of US airline passengers should double in the next two decades, says a government forecast.

However, airplanes are packed and fares are going up, with carriers cutting less-profitable routes.

What is to blame? The media points to climbing fuel prices, and it seems there might not to be much relief in the immediate future, either, according to the latest report by the Federal Aviation Administration (FAA).

US airlines should see a small dip in the number of passengers this year, before resuming a climb that will ultimately see air travel nearly double. “Planes will remain crowded,” said the report that covers the next two decades of air travel. “Shrinking capacity will further lift fares higher in 2012.”

The nation's airlines are expected to have set a record in 2011 by filling nearly 83% of available seats on all domestic flights, the highest rate since the Bureau of Transportation Statistics started keeping track in 1974.

The airline fuel situation is telling in that US airlines buy about 48 million gallons of fuel daily at prices that have jumped nearly 40% in just the last year, according to the LA Times. Fuel represents the largest cost of more than one-third of the industry’s total operating costs.

Fuel prices are volatile, points out John Heimlich, chief economist for trade industry group Airlines for America. "Fuel is our biggest cost, and we don't know what it's going to do."

Volatile Fuel Prices Are Biggest Airline Costs

Airfares jumped about 8% to $346 on average in 2011, from $320 in 2010, according to Airline Reporting Corp. In addition, last year the industry put through nine fare hikes.

Higher fares have led some passengers to change their travel plans, while others have switched to low-cost airlines.

The FAA report predicted rising airfares and growing demand for air travel, but did not foresee much growth in airline capacity, at least in the short term. Airlines, it said, would continue to depend on "ancillary revenues.” Those are consumer fees to check bags and buy onboard food or entertainment.

Major US airlines collected $12.5 billion from such fees in 2011, up from $6.7 billion in 2010, according to a joint study by Ideaworks, a Wisconsin consultant on airline fees, and Amadeus Corp., a Madrid technology company for the travel industry.

The rise in airfares has not kept pace with higher airline costs. The reason: airlines realize passengers will take alternatives if prices reach “sticker shock” levels.

"There is a point where consumers won't go," George Hobica, founder of the travel website Airfarewatchdog, told the Times. "They will stay home."

Air travel will grow at an average 2.8% per year through 2032, the FAA says, slower than the 3.1% growth predicted last year.

The FAA now predicts that airlines won't hit the 1 billion passenger mark until 2024, or three years later than predicted just last year.

US Transportation Secretary Ray LaHood used the report to repeat his calls for an expansion of NextGen, the satellite-based navigation system that aims to make air travel more efficient.

Key Statistics – Global Airfares (source: US Federal Aviation Administration)

  • The number of people flying commercially on US airlines will increase by 0.2% to 732 million in 2012 and then to 746 million in 2013.
  • After this year, air travel is expected to pick up rapidly and will reach 1 billion passengers by 2024, which is three years later than a previous forecast.
  • By 2032, annual passenger numbers in the US are expected to reach 1.2 billion.

By David Wilkening for
David Wilkening is a former newspaperman who worked in Chicago, Detroit and Orlando. He now specializes in travel and real-estate business writing.

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