Posted on 09/20/2010 2:43:33 AM PDT by Willie Green
One of the most frequent questions I get asked during interviews is:
“Why is the airline industry doing so poorly?”
There can be a long list of answers to that question depending on if you are the passenger buying a ticket or the employee working for an airline.
The question actually has an easy answer. Contrary to what politicians frequently attempt to suggest, airfares on average, are simply too low to cover the ever increasing and required costs for safe air travel.
In 1990, the average passenger cost to fly one mile in the United States was 13.4 cents. Twenty years later, the cost was only 12.7 cents per mile. During the last two decades, the average US domestic airline passenger fare measured on a per mile cost basis stayed in a range of 12.0 cents to 14.6 cents.
Note: This is revenue to the airlines and does not include government taxes, fees, security charges etc. that are now approaching 30% per passenger fare.
Comparing 2009 with 1990, the cost of air travel decreased by 9.9% while the Consumer Price Index for inflation increased by 64.1% (cost for air travel excludes government taxes and fees).
If airline passenger travel costs had kept up with CPI inflation over the last 20 years, the average fare to fly one mile in 2009 would have been 22 cents per mile, a 59% increase over the actual cost.
Here are a few staggering statistics for the US airline industry:
* In 1990 there were 460 million passengers. In 2009 there were 704 million passengers.
* In 1990 there were 546 thousand airline employees. In 2009 there were 536 thousand airline employees.
* The US airline industry has lost money in 12 of the last 20 years and accumulated a net loss of approximately $29 billion (excludes airline bankruptcy and reorganization write-downs).
* The price of jet fuel for 2009 was at a four year low and still 240% higher than the airlines paid in 1990.
* Since January 1, 1990, there have been 98 US airlines file for bankruptcy.
After twenty years of on and off airline industry growth, there are now two percent less airline employees responsible for a 53% increase in passengers. The numbers make it easy to see why there are so many complaints against the airline industry.
Sometimes the old cliché: “You get what you pay for”, has true meaning.
The chart below provides average passenger revenue per mile for US airlines, Commuter rail, and Intercity/Amtrak travel as compared to the Consumer Price Index from 1990 to 2009.
Robert Herbst is an independent airline industry consultant. He is the founder of AirlineFinancials.com which provides airline industry analysis and commentary for major US carriers. In addition to his consulting work, Mr. Herbst was a commercial pilot from 1969 until January 2010. His aviation experience and financial background provide a unique analytical perspective into the airline industry.
The drop in air fares is directly attributable to competition from airlines like Southwest and JetBlue which can make a profit at lower prices. It's the capitalist system at work.
I am surprised that some airlines haven't opted for a higher-price, higher-service business model. It wouldn't work in all markets, but NYC-LAX, for example, could probably support it. Now, some might claim that the legacy airlines (USAirways, Delta, etc.) tried that, but evidently their service wasn't considered superior enough to be worth the higher prices.
How many 80 year old railroad cars are in service today?
How many 80 year old railroad cars are in service today?
Actually, quite a few of them have been refurbish/restored and back in service as short-run tourist excursions or available for private lease. You can rent your own "private" train to travel on, or just the private car and attach it to an Amtrak train if you want.
It's a pretty specialized business that not many people are aware of, but if you do a little searching with Google, you'll discover that's what they're doing with a lot of the older vintage classic passenger cars.
That doesn’t really meet the description of your staying in service. Specialty luxury service is not what it appeared you were describing and not the current proposal for spending our tax dollars.
That doesn’t really meet the description of your staying in service.
Neither does the 80-year lifespan that you specified.
That would require at least 7~8 limos, not the 3~4 that I was talking about.
It was your words that claimed they would last the passenger lifetime? Did you mean only in a 3rd world nation where people die by age 50?
Restored collectable limo’s and cars last 80 years as well. But like your example, they are not in regular service.
I was just pointing out yet another of your exaggerations/distortions on your quest to take tax payer money to promote your hobby.
I hear the complaints, but I don’t see the reduction in service quality unless you’re going back to the 60s when it was too expensive for the average American family to travel.
I find the flight service fully acceptable. I’d rather get there cheap and spend the money on the vacation not the travel.
The current trouble the airlines face has more to do with government bungling - airports, FAA, taxes and petty politics.
United Airlines shouldn’t exist today, but Daley and the Feds kept them alive because Daley couldn’t afford to lose another business in Chicago.
Had they properly died the airlines would have been much healthier. Instead we get a GM situation of a zombie airline. Of the airlines I fly I noted a marked reduction in quality service from United once the employees took over.
I've heard of this in Europe (a friend of mine once took a flight within Europe a few years ago where the entire aircraft was a first-class cabin), but not here in the U.S. I've been told by someone in the airline business that this model would be difficult to operate profitably in the U.S. because so many of the prospective customers who might use this service have left the airline industry altogether in favor of private aircraft and shared ownership arrangements (e.g., NetJets).
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