Wednesday, September 30, 2015

Airlines ignoring smaller cities

Jackson's struggle to keep airlines such as Southwest is shared by other cities.  The smaller markets pay the price as airlines consolidate and shut down routes.  The Wall Street Journal reported earlier this month:

A Wall Street Journal analysis of industry and government data shows that while airline service and prices have changed little across the country’s major gateways as a whole, carriers have cut flights and raised fares at many smaller and medium-size airports.

From 2007 to 2014, domestic airfares at the nation’s 10 busiest airports, including Atlanta, Dallas and Denver, increased less than 1% on average, while the combined number of domestic seats fell 1.6%.
But at the 90 next-biggest airports—including Detroit, Honolulu and Birmingham, Ala.—airlines cut their total domestic seats by 14.5% and raised fares by 6.4%. All airfare figures are adjusted for inflation.

The uneven impact reflects sharp shifts in airline strategy. In the three decades after the U.S. deregulated the airline industry in 1978, carriers chased market share at the expense of profits, losing tens of billions of dollars over the period. From 2008 to 2014, four mergers combined eight big airlines into four: American Airlines Group Inc., United Continental Holdings Inc., Delta Air Lines Inc. and Southwest Airlines Co.

 Together, these four carriers control more than 82% of domestic seats in the U.S., and they are now much more focused on profits, methodically adjusting schedules and fleets to maximize their margins.

“Airlines are just moving their capacity where they can make more money, and you can’t make money in smaller communities,” said Mike Boyd, president of aviation-consulting firm Boyd Group International. “As a corollary, the automobile is becoming a more important part of air travel.…You might have to drive an hour for the flight you want.”.....

The carriers say they compete vigorously and make their growth plans independently. They say consolidation and other changes have stabilized the industry and made it possible for them to invest in new planes, which benefits air travelers.

To support their claims, airlines generally point to the 2000-to-2014 period, during which average domestic airfares fell 16% to $391. But from 2007 to 2014, during the most recent wave of consolidation, carriers overall raised fares by 5% at the 100 busiest airports and cut domestic seats by 10%.....
The 5% fare increase, however, doesn’t include the fees airlines charge fliers to check bags or change flights, which have soared recently. From 2007 to 2014, the price of the average round-trip domestic flight, including fees, increased nearly 16% to $291.30, according to industry data....

The major carriers now route almost all their passengers through hubs because it reduces costs and lets them serve more cities, industry analysts and economists said. But that also requires many travelers to catch connecting flights at a hub, rather than fly nonstop between cities.

“Point-to-point traffic is really gone at this point,” said Michael Wittman, an airline researcher at the Massachusetts Institute of Technology. “Almost 100% of flights among the big legacy carriers begin or end at hubs.”

Last year, the 10 largest airports by departing seats together accounted for nearly 35% of the roughly 834 million domestic seats available, a 2.5-percentage-point increase from the top 10’s market share in 2007. The next 90 biggest airports now account for 58% of all domestic seats, about 2.5 percentage points less than in 2007. ....

Carriers also have shifted away from secondary airports in larger cities, in favor of major gateways. At the primary airports in Los Angeles, San Francisco and Boston, airlines added 10.3% more domestic seats and decreased domestic fares by 4.3% from 2007 to 2014. But at the eight smaller airports surrounding those cities, in places including Burbank and Oakland, Calif., and Providence, R.I., airlines cut domestic seats by nearly a third and increased fares by 1.7%.

Airlines made some of their deepest cuts at smaller hubs. Delta eliminated Cincinnati and Memphis, Tenn., as hubs after its 2008 merger with Northwest Airlines, helping decrease those cities’ domestic seats by about two-thirds each from 2007 to 2014. Likewise, United eliminated Cleveland as a hub several years after its 2010 merger with Continental Airlines, leading to a 37% decline in the airport’s domestic seats over the same seven-year period.

Those cuts have had a mixed impart on fares. Cleveland’s fares rose nearly 13% over the period. But Cincinnati and Memphis fares stayed almost flat or fell, because discount carriers filled many of Delta’s gates, increasing competition on popular routes, airport officials in those cities say.
“We’ve had to go through a reinvention,” said Candace McGraw, chief executive of Cincinnati’s airport, where discount carriers now offer 100 flights a week, compared with none in 2007. “We were predominantly a business-traveler airport served by one very large carrier. Now, as we become more multicarrier…there are more price points in the mix.”

The industry’s move toward larger jets with denser seating also has fueled the migration from smaller airports. The new planes have allowed carriers to reduce flights while adding seats overall. Smaller planes have become unprofitable because they can’t carry enough passengers to offset the cost of fuel; bigger jets are less costly on per-seat basis and reduce congestion.

The pain for smaller cities likely isn’t over: The shift to larger jets and a worsening shortage of pilots are threatening regional airlines, which generally fly to smaller cities on behalf of the major carriers....  Rest of article.


Anonymous said...

The cool thing is that it is paving the way for smaller airlines like
Southern Airways Express.

I have always dreamed about creating an airline that would connect the State.

Anonymous said...

Re-regulation may be in the cards, at least if Dems win 2016.

The marketplace has winners & losers, but smart corporations try to avoid inspiring influential losers to call their Congress-critters.

Anonymous said...

Flying through Atlanta or Houston does not bother me at all. It's the fact that the ticket rate from jackson is so much higher than, for example MSY, on most routes even with full planes at JAN. We are subsidizing low fares in Atlanta and New York...

Anonymous said...

Damn KF, you are obviously missing a great investment scheme. Just get these folks on your site that comment about how airlines are losing so much money by not serving Jackson - you know, the ones that judge the total issue to be the full flights that they have been on the couple of times that they have flown, be it a couple every month or a couple in their life - and get them to start a new airline to serve large markets like Jackson.

There is a lot more to the value of serving a city than 'full flights' - and that includes how many flights they can fill up 'every' day of the week and of the month. I am sure that Delta, Southwest, American, or whoever would be flying in and out of Jackson today if it was profitable, but its not due to many more factors than just the seats filled up on certain days and at prime times.

All these flyers that are driving to other cities to fly are still filling up seats on these airlines, so do they really lose anything by not paying the landing fees, gate rentals, staff, etc here?

It would be great to have better service here. I'm all for it so I hope these airline experts that have flown on their 'full flights' go ahead and create their new airline.

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