On a scale of one to five, with five being very dire, aviation industry analyst Darryl Jenkins rates the current health of the U.S. airline industry at about a 10 or 12—and he’s not sure that it won’t get worse. 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.
Jenkins, who is director of The Aviation Institute at George Washington University, Washington, D.C., 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.
"Within 12 to 18 months, I think we’ll see a new pricing structure," he says.
The more meetings and conventions there are, the more passengers there will be for air carriers. 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.
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.
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 help the airline industry regain its health.
Jenkins says, "Until we get a good, robust economy rolling again, you’re going to see everybody on the skids." —Cathy Chatfield-Taylor