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After American Airlines is settled we’ll likely see a period of relative normalcy in the U.S. market now that mergers, labor negotiations, route closures, and standardization of fees have given the industry a restart.
Higher airfares, crowded planes and added baggage fees are here to stay as the decade-long airline merger trend reduces jobs at the region’s three major airports, industry experts say.
American Airlines’ reorganization plan and proposed merger with US Airways could be the latest in a series of airline consolidations that includes AirTran merging with Southwest last year, United joining Continental in 2010, and Northwest becoming part of Delta in 2008.
The effect in metropolitan New York City, with three major airports, includes the loss of hundreds of jobs, including the most-recent losses tied to American Airlines’ bankruptcy.
The three large airports that serve the New York region, Kennedy, LaGuardia and Newark Liberty, contribute $65.3 billion in economic activity and $23.5 billion in wages and salaries, and 470,000 jobs are derived from airport economic activity, according to the Port Authority of New York and New Jersey, which operates the airports.
Of the 2,205 flight attendants who have accepted an early retirement package from American, 247 were based at Kennedy Airport and 161 were based at LaGuardia.
Among the 2,800 ground workers, including mechanics, maintenance workers, dispatchers and fleet service workers, 135 were based at Kennedy, 38 at LaGuardia and 11 at Newark Liberty.
Tom Hoban, a spokesman for the Allied Pilots Association, the union that represents 10,000 American Airlines pilots, said bankruptcy has been “Armageddon” for airline workers in terms of lost pay, benefits and seniority.
But when US Airways approached union workers at American Airlines about a merger, they reached contract agreements within six weeks, pending court approval of the merger, Hoban said.
“You have 55,000 front-line employees who want to see this merger happen,” Hoban said.
A bankruptcy court judge must approve American’s reorganization plan, and federal airline regulators and the U.S. Department of Justice must sign off on the proposed merger.
Commercial passenger airline mergers, prompted in part by soaring fuel costs, weak passenger demand and the economic slowdown, have trimmed the number of carriers serving the bulk of the domestic passenger market to five this year from 10 in 2000.
The reduction has “dramatically consolidated control of the industry,” according to the U.S. Department of Transportation inspector general’s office, which in September issued a report on the state of the industry.
Mergers could hurt travelers
Airlines gobbling up one another could mean consumers’ wallets take a hit in the long term, according to the inspector general’s report.
Having fewer major airlines suggests that increased airfares and reduced capacity will be a permanent industry shift, not just a phase, the report concluded.
“Eventually, consolidation results in a decrease in services and an increase in prices,” said Bill McGee, an aviation and travel consultant to the nonprofit Consumers Union. “It’s economics 101.”
Average airfare for short routes — flights of as many as 500 miles — increased to $162 in 2011 from $116 in 2000. For flights of between 500 and 1,500 miles, airfares rose to an average of $191 from $177 in the same period, and to $236 from $226 for long-haul flights of 1,000 to 2,499 miles, according to U.S. DOT statistics adjusted for inflation.
“Consumers can expect higher prices. That’s the trend line,” said Kevin Mitchell, of the Business Travel Coalition, a group that represents corporate travel managers. “As you get fewer and fewer competitors, you can expect them to care less and less about consumers.”
U.S. airlines have started making money again, with carriers collectively posting operating profits of $7.7 billion in 2010, and $5 billion in 2011 — even with spikes in fuel prices in early 2011. The industry lost money between 2001 and 2005, according to the DOT report.
Solvency came after airlines merged, streamlined operations and cut expenses, including trimming flights with empty seats. Passenger flights were cut by 14 percent between 2007 and 2012, with most of the cuts made during the recession in 2008 and 2009. From June 2011 to this past June, the industry cut 2.8 percent of its flights.
More crowded planes
Load factors — the measure of how full planes are when they fly — increased to 82 percent in 2011 from 71 percent in 2000. Crowded planes mean the airlines offer fewer discounts for unsold seats, according to the inspector general’s report.
Overall, the industry “successfully” raised fares 11 times last year, and four times so far this year, the inspector general found. A successful fare increase is one that an airline’s competitors match.
Baggage fees alone added $2.7 billion to the airlines’ bottom line last year. Overall, all fees charged have increased to an average of $22 in 2010 from $3 in 2000, according to Airlines for America, a trade group representing 90 percent of passenger and cargo air transport providers.
Complaints, crashes down
Since 2007, complaints about airlines are down, the percentage of on-time flights has increased, and the number of mishandled bags has fallen, according to the trade group and the DOT’s Bureau of Transportation Statistics.
This has happened while commercial aviation, under Federal Aviation Administration’s Part 121 regulations that govern scheduled passenger and cargo flights, has had just one fatal crash — Colgan Air Flight 3407 outside Buffalo in February 2009 that killed 50 people — since 2007.
Victoria Day, managing director of communications for Airlines for America, said flying today is a bargain when the cost of airfare is adjusted for inflation.
The group’s research concluded that the U.S. Consumer Price Index increased 30 percent between 2000 and 2011, while the price of a domestic round-trip airfare plus added costs such as taxes, seat reservation and bag fees increased only 15.2 percent in the same period.
“In real dollars, it costs less to fly today than it did 10 years ago,” Day said.
In 2000, a round-trip domestic airfare cost an average of $316, and in 2011, the same domestic fare cost $365, including new fees such as reservation or baggage charges, according to Airlines for America.
Aviation industry analyst Mike Boyd, of Boyd Group International in Evergreen, Colo., said there hasn’t been “much of a downside” to the merger trend.
Airlines “are just trying to price tickets to get into the black,” Boyd said. “The airline industry is just a cutthroat business.”
The cost of airline consolidation
Since 2000, these five major domestic carriers have merged with other airlines: TWA, America West, Northwest, AirTran, Continental.
Here’s a look at the change in average one-way fares by flight length; the total number of domestic passengers per year; and the total number of full-time industry workers:
LONG HAUL (1,500 miles or more)
MEDIUM HAUL (500 to 1,499 miles)
SHORT HAUL (less than 500 miles)
PASSENGERS BOARDED (in millions)
FULL-TIME AVIATION-RELATED EMPLOYEES
Source: U.S. Department of Transportation and Airlines for America.
(c)2012 Newsday. Distributed by MCT Information Services.