The U.S. Airline industry has been in a continual state of change for the last 40 years. A new … [+]
Airlines for America, stylized as A4A, is a group that supports the U.S. airline industry and lobbies for supportive policies. A4A employs economists and analysts to help ensure that industry narratives follow real data and not only emotions. The U.S. airline industry has been continually changing since deregulation in 1978, and yet views of what the industry is and how things work tends to evolve more slowly. This makes views of the industry often out of sync with the reality. Many people, for example, still think of Southwest Airlines as a low-fare, leisure airline when many of their customers choose them for business travel and they have raised their fares significantly over the last decade.
A4A publishes regular updates called the “Industry Review and Outlook”. The most current report, published in October 2021, has a series of charts and graphs that outline recent trends and the current position of a number of interesting factors affecting the industry. This presentation is current and based on data, so it provides good insight into the industry as it operates today. Some of its findings will surprise many, for example:
In 2020, the price to fly including all the extra fees like baggage was over 60% cheaper than in 1980. This is despite significantly higher fuel prices, and it means the growth in people flying has greatly outpaced the population growth. This is possible due to lower airfares, and more modern, fuel-efficient airplanes. It also is possible because of a wider range of business models, including world-wide, global airlines like American, Delta, and United, ultra-low cost airlines like Spirit and Frontier, and hybrid airlines like JetBlue and Alaska. In fact, in 2020, 87% of the U.S. population says they have taken a commercial airline trip, and this is the highest number ever recorded in this category.
In 2021, a record 39% of all planes flown commercially in the U.S. have over 150 seats. In 2005, that number was 11%. United’s big recent order was largely about replacing 50- and 70-seat jets with larger, more seat-cost efficient Boeing 737s and Airbus A320s. Not surprisingly, the lowest-cost carriers fly the largest average number of seats per flight since that density is a big component of their cost advantage. Customers have certainly felt this and this has pressured the time it takes to board and deplane, but there is no denying that this has helped to bring about lower fares for all customers.
Coming into the pandemic, a record 90.1% of the top 2000 largest domestic markets had nonstop service, up from under 70% in 1990. This is largely due to lower-cost carriers who fly point-to-point route networks, and consolidations that collectively closed smaller hubs resulting in more point-to-point flying. Also, despite consolidation that reduced the total number of airlines, routes of all sizes have actually increased in competitiveness. In 2000, the average of all routes flown commercially had 3.3 competitors. Going into the pandemic, the busiest routes in the country had almost 5 competitors per route and the top 2000 average grew to 3.5 competitors. This is good for consumers – most have real choice and nonstop flights when they want to fly.
The largest four airlines in the U.S. — American, Delta, Southwest, and United — collectively carried just over 90% of all domestic U.S. travelers in 2000 (this comes from combining carriers that later merged, for example including Northwest as part of Delta). Over the next 20 years, this dominance shrunk with the growth of low-cost airlines and new business models, so that in 2020 these big four collectively carried 74% of all travelers. Southwest was the only airline to increase their individual share in this period, up from 18% to 22%. The big growth came from the new hybrid models and the ULCCs, who collectively now carry 26% of all domestic travelers. As part of this growth, almost 90% of the U.S. population now has access to a lower-cost airline.
Just before the 9/11 terrorist attacks, over 3,500 people flew everyday between Washington and Boston, and over 2,500 flew between Washington and New York. The security changes that followed the attacks, along with improved train service including the Acela and multiple bus services for the most price-sensitive travelers, have reduced these numbers dramatically. Just before the pandemic, travelers from Washington to Boston dropped by 500 per day and Washington to New York dropped by 1,500. But since the pandemic, this traffic has dried up with fewer than 500 people per day flying on each of two previously high-volume northwest shuttle routes. Once the battlefield that even included the Trump Shuttle, airlines have realized that the real money in flying is made elsewhere.
Adjusted for trip length, the average U.S. airline ticket now consists of government-imposed taxes and fess that total 38% of the total price. This is up from 30% just 11 years ago, in 2010. The biggest increase is for fares from $100 to $300. This is the largest category of fares sold, and is a large majority of the fares sold by the lower-cost airlines. Despite this, these carriers have been able to sustain profitability largely due to the simplicity of their business models and generally younger, fuel-efficient fleets.
If you only look at the headlines, you might think that a fight breaks out on every flight, or every flight is cancelled, or those deserving a refund are told to pound sand. But according to the American Consumer Satisfaction Travel report, satisfaction with airline travel is is now at its highest point in the last 20 years, at over 75%. This is largely due to the fact that airlines have been proactive in ensuring protection since the pandemic began. Airlines, lead by JetBlue, mandated masks on airplanes before government mandates. Airlines have also educated consumers on the benefits of Hepa-filters on planes, and vertical airflow, and the cleaning that goes on between flights. Also noted in this survey was the increased ability to self-service on things like check-in, flight changes, and more.
In just the last three years, U.S. passenger airlines have taken delivery of over 1,000 new, fuel-efficient aircraft. In this same time, investment in people and aircraft far outstripped the more media-attractive share repurchases. Importantly, the A4A group has established a target to reduce CO2 emissions from the industry by 50% in the next 30 years, and many individual airlines have set their own internal targets to meet these goals head on and sooner. Airlines are an efficient way to travel, and even if some business can be converted to video there are still many goods that must be moved, and many reasons that video does not meet the needs of the trip. But new aircraft, better engines, alternative fuel sources, and more can make these trips good for the economy and good for the planet.
Having a modern view of this dynamic industry is important for policy-makers and consumers. Many people questioned why the government would give support to this industry in the pandemic, but the employment, heavy union participation, and foundational support for the economy justified it for many making that decision. Time to update our narratives!
I am the former CEO of Spirit Airlines, where my strong team transformed the company into the highest margin airline in North America and created a new model for air
I am the former CEO of Spirit Airlines, where my strong team transformed the company into the highest margin airline in North America and created a new model for air travel in the US. I now serve on several public and private company boards, am an Adjunct Professor of Economics at George Mason University, and co-host the popular weekly podcast Airlines Confidential.