Airlines watch 15% of last year’s revenue disappear

by Tom Johansmeyer on

U.S. airline passenger revenue fell in October, completing a full year of dismal monthly performances. From October 2008 to October 2008, passenger revenue dropped 15 percent, according to calculations by the Air Transport Association. The study was based on a sample group of more than 24 air carriers. Falling ticket prices are said to be the problem … which means we can trace it back to household finances, throwing the job market into the mix.

With unemployment now above 10 percent, consumers are being careful with their extra cash (if they have any), and dropping cash on plane tickets is pretty difficult. Hey, that’s why more people are driving this year than in the past.

In October, the number of people flying on U.S. airlines fell 3 percent, and the average price to fly one mile dropped 13.5 percent. Basically, the number of people flying hasn’t fallen much, but they’re demanding much better pricing for their business. Airlines have to take it on the chin in order to bring any revenue in the door at all.

Congress to investigate airline fees … but not for your benefit

by Tom Johansmeyer on

Congress is digging into all those new airline fees. Extra bags, special check-in situations … you name it. Before you start cheering on our lawmakers, though, you should know that they aren’t doing this from a sense of consumer advocacy. Frankly, Congress doesn’t give a damn how much you pay for air travel. But, it does care how you pay. Why? A cash-strapped government is wondering if it’s leaving money on the table.

When you look at your receipt, the line with “taxes” has never been lost on you, right? Well, the add-ons aren’t included in this number: Congress has a tax on airfare, not all the other stuff. So, for the airlines, this has been a tax-free revenue stream, one that’s been crucial to helping the already bruised airlines survive the current recession.

Yet, is it really just airfare in another form? That’s what Congress wants to know. Even if this is a different form of revenue, do you think it will be left untouched? Of course not! The government needs money, and there’s nothing stopping it from passing a new bill to tax the extra services. How much resistance would be raised?

Think about it.

The average person, even if traveling frequently for personal reasons, wouldn’t be hit too hard by the tax on the fees. If a $10 bag surcharge were taxed at 30% (just to pick a random and unreasonably ugly number) and a passenger flew weekly, he’d rack up $152 in taxes on the additional fees … and that’s assuming he needs to check the extra bag and did so every week. If faced with this or a higher income tax, how would you ask your congressman to vote?

Add it all up, and there’s some tax money to be had. The airline industry has pulled in more than $3 billion this year from the extra fees we all love to hate. If they were taxed at the same rate as fares — a much more reasonable 7.5% — $225 million in tax revenue would be generated. That’s not a trivial number.

The fees aren’t going to go away, and if all goes as it seems, a new tax will be here to stay, as well.

White House pushing for answers to airline industry woes

by Tom Johansmeyer on

The Obama Administration is taking a closer look at the airline industry with the hopes that something can be fixed. Transportation Secretary Roy LaHood is pulling together a panel that will investigate the problems the industry faces and hopefully come up with a solution. But, I don’t think anyone’s breath is being held.

The airlines are always swamped with criticism, with consumers unhappy about customer service levels, on-time arrivals and departures, the shrinking list of amenities and increasingly cramped conditions. Now, shareholders are speaking louder about declining revenues and profits. Employees are losing their jobs, and regulators and industry observers worry about continued safety violations, including drunk and distracted pilots.

Ultimately, LaHood’s goal is for the panel to put together “a road map for the future of the aviation industry.” The panel is being convened thanks in part to a push from the airline unions, the stakeholders worried most by the layoffs that have now become routine. According to The Associated Press, they believe the industry is “dysfunctional.”

Of course, it didn’t take the airlines to offer their thoughts ask for money — lots of it. They claim that radar technology that dates back to World War II isn’t as effective as a GPS-based alternative. The industry would love to see this upgrade … as long as the government writes the check. The FAA is already prepared to spend $15 billion to $22 billion on this effort, but there is an additional $14 billion to $20 billion currently sent over to the airlines. The upside would be reductions in airport congestion, fuel consumption and carbon emissions.

The Air Transportation Association (shockingly) thinks the taxpayers should pay the bill because the system would benefit the whole country. US Airways CEO Doug Parker wrote a letter to LaHood saying that the airlines simply don’t have the cash to meet their end of this.

Unfortunately, the airline industry has once again asked for money and not offered any solutions of its own. No suggestion was offered as to any of the other difficulties pertaining to the industry, and I tend to become suspicious when there is only one problem identified. It implies that everything could be fixed, in this case, with the replacement of radar air traffic control systems with GPS technology. We’re dealing with an industry that has lost credibility rapidly, so even if this one grand move would address ever gripe, large and small, a willing audience is unlikely to take shape.

[Photo by extremeezine via Flickr]

Will flights be less crowded next year?

by Tom Johansmeyer on

The number of passengers passing through planes in 2010 is expected to decline again. The Boyd Group, a consulting firm in this industry, forecasts a decline of 74 million passengers relative to 2008 – down to 675 million next year. This means you’ll get a little more elbow room, as long as the airlines don’t respond with more route cuts. The fact that unemployment is likely to break the 10% level early next year isn’t helping, as people will be less likely to pick up a ticket and hit the road if they are worried about losing their jobs.

The year after is the one we’re all waiting for – the airline industry is expected to start to recover in 2011. It’s going to take a while, though. Even in 2014, there will be 16 million fewer passengers than there were in 2008.

United to try checked luggage buffet

by Tom Johansmeyer on

Do you always travel with two bags to check? Some people don’t travel light, and they know that, in this new world of airline fees, they’re going to have to stomach an extra charge as a result. Under a new United Airlines plan, you’ll be able to “subscribe” to extra bag privileges. Instead of paying $20 for the first bag checked and $30 for the next one, you can shell out $249, buffet-style, and enjoy a full year of checking two bags.

This works for both domestic and international flights. The program pays for itself after a mere five trips. So, if you’re a road warrior or just like your vacation time, this could be a smart program for you.

But, don’t get too comfy: United is calling this an “introductory price.” If the program works well, expect your breakeven point to creep a bit higher next year.