Traverse City Record-Eagle

November 12, 2013

Airlines serve as barometer for economic health

Traverse City Record-Eagle


Cherry Capital Airport manager

TRAVERSE CITY — Economic trends in the aviation industry are mixed at best.

We see steady passenger numbers in communities that have strong tourism support (like the Pure Michigan campaign) and declining numbers in others.

Aircraft manufacturing indicates lots of new aircraft operators are just replacing aging fleets. What does this all mean?

It means the economic trends have changed.

Years ago, the market indicators were gross domestic product, unemployment, income, and population growth.

Airlines today have found Business 101 to be helpful and no longer accept the last 12 years of losses totaling more than $49 billion. They are now focused on market indicators like load factor, revenue per seat, ticket yield, and market capacity. One would think this would mean higher fares, however; fares since 1995 have remained relatively unchanged but, if you adjusted for inflation, the average fare has decrease more than 18 percent.

New methods of revenue “ancillary fees” have become the new norm. From low cost airlines to legacy carriers, all charge fees for most amenities and changes in itineraries that a passenger requests. This has generated an unbundled, a la carte product that consumers seem to like.

Who is who in the airline industry? Northwest was folded into Delta, Continental merged with United, Air Tran was acquired by Southwest, and US Airways is attempting to merge with American. As this shakes out, 85 percent of the domestic traffic will be handled by the now four legacy carriers (American, Delta, United, and Southwest), three of which operate here in Traverse City!

Southwest is no longer the low cost carrier as they now have the highest per seat cost in the industry. Recently, Southwest has been leading the way in fare increases. Southwest’s per seat cost is one of the highest, but their marketing program is still one of the best in the industry. They still endeavor to portray themselves as a “low cost” carrier to the consumer.

The industry will still see growth in the ultra low cost carriers like Spirit and Jet Blue and vacation companies like Allegiant and Sun Country. These carriers will focus on point to point routes in large metropolitan areas and seasonal markets.

Yesterday, airlines competed for communities. Today, communities have to compete for airlines. If our community does not use its air service, the airlines will move it to another community. Return on investment on their assets, “the plane,” is what airlines are after.

We as a community need to demonstrate that we can produce strong load factors, high yields, and market growth. We need to stay focused on our core strengths: business travel, high end leisure travel, and international travel.