Airline Woes: Fewer Flights, Higher Prices

By Margo McCall -- Tradeshow Week, 1/9/2006

Airline industry analysts may laud the fact that carriers are cutting flights and raising prices, but it won't make life any easier for convention organizers or travelers.

According to an analysis by USA Today, airlines in the past year have cut their capacity by 3.9 million seats, a 5-percent reduction. The reductions were carried out mostly by eliminating late-evening flights and cutting the number of flights on a given route, rather than canceling the route entirely.

At the same time, business travel continues its rebound. Nearly 148.9 million business and convention travelers are expected this year, up 1.6 percent from 146.6 million travelers in 2005, according to the Travel Industry Assn. of America. The number of business and convention travelers is projected to rise to 152.6 million in 2007, up 2.5 percent from 2006.

In addition, the TIA forecasts a continuing surge of international visitors in 2006 and 2007, after declines between 2001 and 2003.

That translates into fewer flight choices, more crowded flights, diminished upgrade opportunities and potentially longer lines at airport terminals. But it could also mean a greater chance of survival for U.S. airlines, eight of which are currently undergoing bankruptcy reorganization.

American Airlines and United Air Lines have each cut capacity by 3 percent in the past year, while Northwest Airlines and Delta Air Lines operate 11 percent and 19 percent fewer flights, respectively. Continental Airlines has actually increased the number of flights it operates, according to the USA Today analysis.

Airline carriers were already struggling against massive debt loads before gas prices started skyrocketing. The fuel price increases have been so extreme that airlines are unable to pass along costs, noted the Air Transport Assn. industry trade group. Each penny increase in a gallon of jet fuel adds $190 million in additional fuel costs for airlines, according to the ATA, which estimated that jet fuel prices rose by more than $25 per gallon in 2005.

The industry has also had to contend with heightened competition from low-cost carriers such as Southwest Airlines and JetBlue Airways. But even the low-cost carriers feel pressure from the higher cost of jet fuel.

Airlines are reacting by raising fares. According to the American Express business travel monitor, average one-way airfares for business travelers rose to $219 in the third quarter of 2005, up from $217 in the year-ago quarter.

Fare increases are even greater for international travel. According to the monitor, the average international third-quarter fare of $1,633 was up 10 percent over the year-ago quarter. First-class and business-class fares, meanwhile, exhibited a 5-percent increase year over year.

However, average fares are still far lower than they were several years ago. The American Express business monitor noted average one-way fares of $259 in 2000 and 2001, $243 in 2002 and 2003 and $225 in 2004.

One other plus: Airport screeners are now being directed to focus on problems like explosives, instead of tweezers or cuticle scissors.