“I've never, in my 30 years in the industry, seen anything as bad as what we're going through now,” says Darryl Jenkins, director of The Aviation Institute at George Washington University, Washington, D.C. “We don't see a letup in the short term, and we're not sure that it won't get worse.”How much worse could it get? The year 2000 was a high-water mark for air travel. Today, traffic is 10 percent below that level, according to a spokesperson for the Air Transport Association (ATA), a trade organization for the principal U.S. airlines. And with the aftereffects of war and ongoing concerns about SARS, travel demand is not likely to improve, even during peak season this summer.
In response to low demand, airlines are scheduling fewer flights, reducing capacity by flying smaller aircraft, negotiating wage concessions to cut labor costs, and slashing ticket prices to a level not seen since 1987. Major carriers have dropped walk-up fares by as much as 40 percent, according to Jenkins. The result: less revenue but not more traffic. “It will take price cuts in excess of 40 percent,” he says. “Right now, you can't justify that, given the current cost structure.”
Jenkins predicts that the only way to bring air carrier supply and passenger demand into balance — short of liquidating a major carrier — is to reduce capacity and eliminate the lowest tier of fares. If the number of seats is more in line with the number of travelers, carriers won't need deep discounts to sell the last seat. “In 12 to 18 months, we'll see a new pricing structure.”
Meanwhile, group travel fares will not change much, primarily because discount fares for meeting and incentive travel are still more profitable than discount leisure fares. “A good meeting fare is about 50 percent off,” Jenkins says. “A discount fare for leisure travelers is about 70 to 80 percent off.”
Planners will be able to leverage their position by negotiating favorable group rates. What they won't be able to negotiate are the frequency and capacity of flights to their destinations. During a typical week in April, for example, carriers operated 12 percent fewer flights in 2003 than that same week in 2001, says OAG, which maintains a flight schedule database for more than 930 airlines worldwide. Until supply and demand are in balance, carriers will continue to cut back service to second- and third-tier cities, schedule fewer flights in and out of major hubs, and fly regional jets instead of jumbos. But service to convention destinations will continue, as long as meetings are held there.
“We're in business to carry as many passengers as we can,” the ATA spokes-person says. “If there are passengers, we want to provide flights. We won't fly empty planes.”
Thanks to $3 billion in government aid — representing relief from a tax collected to pay for federal security at airports — carriers in financial distress or bankruptcy are expected to stay airborne. But only an economic recovery will really help the industry.
“Until we get a good, robust economy rolling again,” Jenkins says, “you're going to see everybody on the skids.”
Cathy Chatfield-Taylor covers the meetings industry as a freelance writer and editor.