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Airline Mismanagement

The Christmas travel period 2008 saw air passenger numbers down by approximately 9% compared to the previous year.

This downward trend in passenger numbers is accelerating.

Why is it happening?

 
 
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Ten Reasons Why Fewer People are Flying

Air travel is down by almost 10% - is this due to the economy or something else?
 

If passenger numbers continue to drop at an almost 10% year-on-year rate, empty airport gates will become increasingly common.

Are the airlines correct to blame this reduction on the economy?

Part one of a three part series on why fewer people are flying - please also visit

1.  Facts, figures, fares and fees
2.  Full and fewer Flights, better alternatives

3.  The total unpleasantness of air travel today

 

 

The airlines blame the dropping number of passengers on the tough economic conditions at present.  But this reduction in air travel started before the economy 'nose-dived' - and, let's be less histrionic.  The economy shrunk a barely noticeable 0.5% in the third quarter - hardly a 'nose-dive' at all, while air travel dropped by more than ten times that amount.

Although the airlines are masters at blaming everyone but themselves for every successive problem they encounter (and have you noticed that the last decade seems to have been non-stop problems for the airlines?), let's look carefully at why air travel numbers are down.

Article Update Summary

This article was revised on 15 January 2009 to incorporate the latest statistics released from the US Bureau of Transportation Statistics.  These statistics - for October 08 - simply extend the trends of the preceding months and in no way alter the reasoning or conclusions presented herein; if anything the tend extension reinforces them.

Background Facts and Figures

It is difficult to easily spot trends

 in air travel numbers, due to the very seasonal nature of air travel, which makes a simple plotting of month to month numbers meaningless.  More people travel in summer months, and if there's a month with a major holiday featured (eg 4 July, Thanksgiving, Christmas/New Year) travel numbers are massively different to the quiet numbers in the months before and after.

Traditionally, the measure used to track the rise or fall in passenger numbers is therefore to compare passenger numbers each month with the same month the previous year.

Using this method, we see that for the period from October 06 through March 08 there was an unbroken period of monthly increases in passenger numbers.  And for the broader 67 month period from September 02 through March 08, passenger numbers increased in all but four of those months, with the four months of decrease being trivial decreases typically of less than 1% and never more than 1.6%.  In other words, there has been an extended and very positive period of overall growth in air travel over the last six plus years.

This growth extends even further into the past.  A Department of Transportation data series dating back to 1996 shows that for the 56 months between January 1997 and August 2001 only four of the months did not show a year-on-year growth, and again those four months had trivial (typically 1% reductions), quickly expunged by the positive months that followed.

The short-term 'blip' caused by the 9/11 terrorist attacks took about two and a half years for passenger numbers to return to and exceed the numbers prior to September 2001.  Viewed on a time scale from 1996 through 2008, the Sept 2001 temporary drop in passenger numbers is merely a short term blip on an otherwise steady growth in passenger numbers.

In theory, this record of steady growth is one that most industries would dearly love to embrace.  So where's the problem?

The current contraction started in April 08, and since then, each month has shown a reduction in passenger numbers compared to the previous year, making now for a nine month unbroken period of market contractions.  With the exception of the post-9/11 period, this has never happened before (the longest period before was a three month period in 2006, with trivial 1.4%, 0.8% and 1% reductions).  And whereas the occasional poor month in the past would show perhaps a 1% contraction, the last nine months have been showing much larger contractions, and it further appears that the month-on-month contractions are increasing in size.

Here's a chart showing passenger numbers.  To eliminate the month to month swings and to show trends, it is a rolling twelve month average.  RPM means 'Revenue Passenger Miles' and related to the total number of paid miles flown by passengers on domestic flights in the US.  ASM means 'Available Seat Miles'  and shows the total available capacity of the airlines during the same time period :

Note that because this chart uses a 12 month rolling average, the impacts of the last few months of contraction are not shown so vividly.

To highlight the changes, here's a chart that shows, for each month of 2008, its change compared to the same month in 2007 (note that Nov is my estimate and Dec is an industry estimate - official data has not yet been received).

The purpose of the preceding information is to explain the nature of the problem and to put it into perspective.  There is no doubt that passenger numbers are indeed falling appreciably, and there is no doubt that this is more than just a passing random statistical variation.

But what there seems to be doubt about is the reason for these changes.

(Note - all charts use the excellent data offered by the US Bureau of Transportation Statistics, except where otherwise noted.)

Reason 1 :  Higher Airfares Mean Fewer Travelers

Is this obvious, or what?  Basic economics - and common sense - tells us that if you increase the price of something, you'll sell less of it.  And when it comes to increasing prices, the airlines are masters of mismanagement.

Most companies seek to adjust their prices only rarely, so as to convey an impression of stability in their product and its price/value.  But during a single twelve month period between summer 2007 and summer 2008, the airlines attempted to increase their fares 30 times (with 20 of their increases actually succeeding).

Not only has this genuinely increased the cost of air travel, but it has massively publicized the increasing costs, and gives the traveling public the impression of an out-of-control escalation in the cost of air travel.  Other than gas, do you know of any other product or service that has increased its pricing so much and so often?

And - let's think about gas pricing.  Sure, gas pricing changes, sometimes on a daily basis.  But it goes both up and down, whereas, after the 30 attempted price rises in a single year, there surely haven't been a matching number of price drops since the 2008 summer, even through fuel prices (the excuse for the 30 price increase attempts) are now way below their levels of summer 2007, and less than a third of what they were in summer 2008.

And the price we see on the billboard at the station is the price we pay - there are no hidden surcharges or extra fees.

The airlines have managed to harm themselves three different ways here.

  • Firstly, they've subjected us to 'the death of a thousand cuts' by constantly aggravating us with price rises averaging once every two weeks.

  • Secondly, they truly have increased the cost of air travel at a rate greater than the rate of inflation, with a commensurate drop in travel numbers.

  • Thirdly, they've offended our sense of fair play by not matching the price rises - which in part we all grudgingly understood and accepted due to rising oil prices - with price drops now that their reason for increasing their fares has vanished.  In cases where they have reduced their fuel surcharges, they've simply taken the fuel surcharge amount and added it to the base fare, so that the amount we pay remains the same.  How cynical is that, and how stupid do they think we are not to notice?

The bottom line - higher airfares (and the massive new fees) have caused a reduction in passenger numbers.

Reason 2 :  All the Nasty Extra Fees Discourage Passengers

It is now possible to pay more to an airline to transport your luggage than you pay to travel yourself.  If you think that is fair (or even sensible) then I'll guess you're an airline executive.

Most of us passengers/customers think it outrageous that it is cheaper to fly a 240lb passenger, complete with amenities and frequent flier miles, than it is to place 120lbs of luggage in the hold.

That's not the only outrageous fee.  Do you know of a single other industry that sells you something, and then adds an extra fee when you actually choose to buy the product from them?  The airlines will charge you up to $35 to phone their reservations center and buy a ticket - at full price - from them.

Fees are now commonly charged by most airlines for :

  • Phone Reservations

  • A second piece of luggage

  • A first piece of luggage

  • Even more for luggage weighing more than 50lbs

  • Even more for luggage larger than standard size

  • Note these luggage fees are accumulative - you can end up paying all three fees - the fee for a piece of standard luggage (up to $25), for overweight (up to $150) and oversize (up to $360) - and these fees are each way, not roundtrip.

  • Advance seat selection

  • Premium for 'good' seats

  • Early boarding fee

  • Alcoholic drinks

  • Non-alcoholic drinks

  • Meals

  • Snacks

  • Standby

  • Curbside checkin

  • Unaccompanied minor

  • Traveling with a pet

  • Pillows and blankets

  • Changing your flights

  • Cancelling your flights

But wait, there's more.  Spirit Airlines was fined by the Department of Transportation in December 08 for some even more imaginative fees that it added to its tickets without properly disclosing in advance :

  • A 'natural occurrence interruption fee' of $2.50, designed to cover the airline's costs of refunds when it has to cancel flights due to bad weather

  • An 'international service recovery fee' of $8.50 to cover the costs the airline pays to foreign governments to allow it the right to fly over their territories

  • A 'passenger usage fee' of $7.90; subsequently renamed as a 'convenience fee' and reduced to $5.00, for all tickets not purchased at an airport ticket counter

Not only are the airlines pricing themselves out of existence, but they're offending our sense of fairness in the process, thereby accelerating the alienation between their customers and themselves.

Part one of a three part series on why fewer people are flying - please also visit

1.  Facts, figures, fares and fees
2.  Full and fewer Flights, better alternatives

3.  The total unpleasantness of air travel today

 

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Originally published 9 Jan 2009, last update 19 Dec 2013

You may freely reproduce or distribute this article for noncommercial purposes as long as you give credit to me as original writer.

 
 
 
 

 


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