Continental in 2011 and the] Frontier Airlines merger [with Midwest Airlines in 2010] have been pretty positive for us.”
HIGHER PRICES AND A HEALTHIER FUTURE So what will all of this cost? “Generally, fares have risen, if you look at the last seven years,” said Cor- nelius, who noted that the compounded annual growth rate of domestic fares has increased about 3 percent since 2005. “When there is lost com- petition, that’s basic economics — the consumer sees a price increase. But it’s also a market-by- market situation.” For example, there are exceptions like Den-
ver, where, according to Scharf, the number of flights has increased even as the average domestic airfare has dropped 27.5 percent since 2002. But experts maintain that the cost of flying as a whole will not drop, especially in destinations with less flights and less competition. “Fares will increase, absolutely, there’s no question,” said Michael C. Boyd, chairman of Boyd Group International, an aviation consulting, forecasting, and research firm. “Let’s put it this way — the cost of air travel will go up. Fares will go up a little bit, but other costs like bag and reservation fees, those are going to go up. The cost of getting on an airplane is going to go up. It’s going to appeal to fewer and fewer price- sensitive populations.”
Despite these fare increases and flight cuts,
most of the experts and analysts Convene spoke with had positive outlooks on the changes happen- ing in the airline industry and what lies ahead — for everyone. “I believe that absent another shock to the system, we have seen the end of whole- capacity cutting in markets around the country,” Swelbar said. “A lot of the capacity cuts were largely due to duplicate capacity. All the airlines
were really doing was taking their flights to their larger, more efficient hubs so as not to compete with themselves.” Another reason the future looks rosy is that
airlines have had time to adapt to the triggers that have traditionally made it so susceptible to economic turbulence. “If you look at the cost of fuel right now, it’s very high, but [the airlines have] retooled themselves to be able to make money in this environment,” Cornelius said. “They’re a lot less vulnerable to external shock than they were at any point in history.” And although meeting attendees who live
in or travel to medium-sized destinations may view these service cuts as a hindrance, they’re actually a sign that the airline industry is moving toward becoming healthier and more efficient. “There are fewer flights and fewer seats, but the planes are more full,” Cornelius said. “The load factor is higher than it has ever been. The airlines are just doing a better job of matching capacity with demand.” “It’s hard to say or suggest that there are lots of positives, because choice has been reduced, no question,” Swelbar said. “However, I do believe that what we’re seeing is an industry that is mak- ing itself healthy. “The airline industry is not a healthy business.
It’s an industry that managed to lose nearly $60 billion since the industry was deregulated in 1978. It certainly doesn’t have the capital to reinvest in itself. They may lose some choice in hubs to fly through, but I do believe that we’re going to see airlines beginning to invest in a better product that customers can enjoy over time.”
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Contributing Editor Jennifer N. Dienst is a freelance writer based in Charleston, S.C.
ON THE WEB
Read Modeling Changes in Connec- tivity at U.S. Airports: A Small Community Perspective, a new study from MIT’s International Center for Air Transporta- tion, at
convn.org/ mit-icat.
Richard Scharf, VISIT DENVER
‘We were very fortunate [regard- ing recent airline mergers]. It gave us an even stronger airport with more connections and international access. The United Airlines merger and Frontier Airlines merger have been pretty positive for us.’
Michael Boyd, Boyd Group ‘Let’s put it this way — the cost of air travel will go up. Fares will go up a little bit, but other costs like bag and reservation fees, those are going to go up. The cost of getting on an airplane is going to go up.’
PCMA.ORG
AUGUST 2013 PCMA CONVENE
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