Thursday, August 19, 2010

2009 Was A Year to Forget in the Airline Industry, But Fares Are Now Up After Carriers Shrank Seat Supply

How bad was 2009 for the airline industry, which has begun to dig out (at least for now: watch oil prices, though), and which posted generally robust earnings in the second quarter of this year?

Very bad, according to the comprehensive annual report for 2009 released today by the Air Transport Association, the airline trade group.

On the other hand, now that airlines have shrunk supply, in terms of the number of seats in the air, and demand is rising, so are fares. The ATA also reported today that on the top seven U.S. airlines, domestic yields (yields are defined as the price paid to fly one mile, exclusive of taxes and ancillary fees) shot up 14.9 percent in July compared with July 2009. In June, domestic yields were up 17.7 over June 2009).

Some highlights from the ATA's 2009 report (the italics are my annotations):

--Operating revenues for the domestic airline industry dropped 16.9 percent to $155 billion in 2009, marking the deepest two-year contraction in the industry’s history -- and extending industry losses to $58 billion over a nine-year period beginning in 2001. [And yes, you read that right. Airlines in the U.S. have lost $58 billion in the last nine years. It might be useful to factor that in the next time we holler about checked-baggage fees, though do note that Southwest Airlines maintained profitability and does not charge bag fees.]

--Passenger traffic declined by 5.3 percent to the lowest total in five years in 2009. Air cargo traffic decreased 12 percent, the largest year-over-year drop in industry history. [Still, says the ATA, the value of U.S. exports transported by air in 2009 was 145 times the value of exports transported by sea.]

--Domestic seat capacity dropped 7 percent in 2009, the sharpest decline in 67 years. The cuts in 2008 and 2009 effectively erased 10 years of industry growth, leaving domestic seating capacity 1.3 percent below 1999 levels, but helped set the stage for the start of a recovery. [Which is one reason all the planes are full: Airlines have reduced supply while demand has started to rise.]

--Flight operations costs, which constituted 35 percent of industry costs, declined 33 percent on a $26 billion year-over-year drop in fuel expense to $32 billion. The average price paid for a gallon of jet fuel dropped to $1.90 from the 2008 all-time high of $3.07. [But nobody is breathing easy on this count. See above: Watch oil prices]


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