Airlines cut routes as fuel costs climb
Ticket prices will stay high and planes will stay crowded for the near future, FAA report says.
Airfares are rising, planes are packed, and carriers are abandoning less-profitable routes.
What’s to blame? Climbing fuel prices.
And there will be no relief in the immediate future, according to an analysis released by the Federal Aviation Administration.
“Planes will remain crowded,” said the report released Thursday, and “shrinking capacity will further lift fares higher in 2012.”
The nation’s airlines buy about 48 million gallons of fuel each day at a price that jumped nearly 40% in the last year.
Agallon of jet fuel sold for an average of $3 in 2011, up from $2.15 in 2010.
And although airlines are flying more energy-efficient planes, fuel represents about 35% of the industry’s total operating costs.
“Fuel prices are volatile,” said John Heimlich, chief economist for Airlines for America, an industry trade group based in Washington. “Fuel is our biggest cost, and we don’t know what it’s going to do.”
Airfares jumped about 8% to $346 on average in 2011, from $320 in 2010, according to Airline Reporting Corp., which processes ticket transactions for 190 airlines worldwide. Last year the industry put through nine fare
hikes.
This year, the largest airlines have pushed through two fare hikes so far, each for $10 to $20 per round trip, and it’s still the slow season between holiday travel and spring break, when there is normally less chance of fare increases.
The higher fares have caused many passengers to change travel tactics.
Mark Zoeckler, a technology and innovation consultant from Rancho Palos Verdes, said he now often flies on low-fare airlines such as Jetblue Airways or Southwest Airlines to save money, even though it means he won’t collect loyalty miles from carriers such as American Airlines and United Airlines.
Zoeckler said he was also more likely to stay home and meet clients via online video conferencing.
“My travel habits as a business traveler have definitely changed,” he said.
Although the FAA report predicted rising airfares and growing demand for air travel, it did not foresee much growth in airline capacity in the short term. It said airlines would continue to depend on “ancillary revenues,” referring to consumer fees to check bags and buy onboard food or entertainment.
Major U.S. airlines collected $12.5 billion from such fees in 2011, up from $6.7 billion in 2010, according to a joint study by Ideaworks, a Wisconsin consultant on airline fees, and Amadeus Corp., a Madrid technology company for the travel industry.
Airfares are not rising as fast as fuel costs, partly because airlines realize that passengers will use alternatives if flying becomes too expensive.
“There is a point where consumer won’t go,” said George Hobica, founder of the travel website Airfarewatchdog. “They will stay home. They won’t fly.”
The airlines are compensating by filling nearly every seat on every plane.
They have accomplished this by reducing the frequency of some flights, but also by flying smaller aircraft.
The merger of several airlines over the last decade also helped cut the overall number of available seats.
The nation’s airlines are expected to have set a record in 2011by filling nearly 83% of available seats on all domestic flights, the highest rate since the Bureau of Transportation Statistics started keeping track in 1974.
“As fuel prices continue to rise, capacity continues to be scaled back,” Heimlich said. “That has been the pattern over the past few years.”
Passengers have certainly noticed.
Patty Smith, who flew to Los Angeles from Portland, Ore., for a recent vacation, said she saw no empty seats on her Southwest Airlines flight and can’t remember the last time she has had an empty seat next to her on a flight.
“As small as I am, I felt cramped,” said the petite woman as she waited for a taxi from Los Angeles International Airport.
And as fuel costs have risen, airlines have also axed dozens of routes that rarely filled flights to capacity.
American Airlines — whose parent company, AMR Corp., filed for bankruptcy last year — ended all service last month to Bob Hope Airport in Burbank, citing declining demand and rising fuel prices.
Frontier Airlines, a subsidiary of Indianapolisbased Republic Airways Holdings Inc., has announced plans to cut dozens of flights out of Milwaukee, dropping to 18 departuresby mid-april from 32 today.
“They just haven’t been sustainable routes for us,” said Lindsey Carpenter, a Frontier spokeswoman.
The trend is not surprising, said Hobica of Airfarewatchdog. When airlines generate only marginal profits on routes to smaller cities, higher fuel prices can quickly eat away at those profits, he said.
“If they are not making money,” he said, “they are much quicker to abandon a route.”