By Jennifer N. Dienst
Massive consolidation and rising fuel prices have resulted in fewer flights and higher fares at destinations across the country. Second-tier cities are absorbing the brunt of cuts in airline capacity and competition — and some of them are better off for it.
By Karg se (Own work) [CC-BY-SA-3.0], via Wikimedia Commons
Maybe you’ve noticed the changes and confusion that the U.S. airline industry is experiencing — consolidating or eliminating routes and reducing airlift at destinations across the country. According to William S. Swelbar, research engineer for MIT’s International Center for Air Transportation (MIT-ICAT), it comes down to a single factor that is driving the upheaval: oil prices. In 2011, U.S. airlines paid an average of $2.94 for a gallon of fuel, according to the U.S. Department of Transportation — 51 percent more than what they paid in June 2000.
‘This industry was built on the price of oil at roughly $20 a barrel. In 2008, when oil prices hit $147 a barrel, the airline industry recognized that it was simply operating more capacity than economics could support.’ -William Swelbar, MIT-ICAT
“The push to cut capacity in the [airline] industry can be placed at the foot of oil prices,” said Swelbar, one of the authors of a new MIT-ICAT study, Modeling Changes in Connectivity at U.S. Airports: A Small Community Perspective. “This industry was built on the price of oil at roughly $20 a barrel. In 2008, when oil prices hit $147 a barrel, the airline industry recognized that it was simply operating more capacity than economics could support.”
Since the recession began in 2007, 25 U.S. airlines have ceased operation or filed for bankruptcy. Now, with the impending American Airlines-US Airways merger, the future of domestic air travel within the United States will ride on just four major carriers: Southwest, Delta, United, and American. As a result, airports are seeing their flight capacities cut and the number of airline options available to passengers diminish.
Almost all major U.S. cities have seen decreases in the number of flights serving their airports since 2007 — from a loss of 7.4 percent in Chicago to 18.9 percent in Orlando, according to the MIT-ICAT study, which was released in June. But the study also reveals that small- and mid-sized airports in the United States have been disproportionally affected. For example, former hub cities like Pittsburgh, Memphis, and Cincinnati have lost upwards of 35 percent of their flight capacity in the last six years.
The study found that from 2002 to 2012, more than 14.3 percent of yearly scheduled domestic flights were cut from the U.S. air-transportation network. Smaller airports lost 21.3 percent of their scheduled domestic flights compared to just an 8.8-percent decline at the 29 largest U.S. airports. “What the industry is doing is better matching its capacity to the demand in that airport marketplace,” Swelbar said. “Now, you have four meaningful competitors in all four corners in the U.S., whereas before, the industry was more regionally focused.”
That means, according to Swelbar, that “there are going to be winners and losers in the airport community, no question.” The broad numbers would suggest that second-tier destinations are going to absorb some of the worst of it — but that’s not the whole story.
Airports that experience or have the potential to experience changes in air service need to respond. [They] do their best to hold on to the airlines they have, but when circumstances change, they change, too.’ -Matt Cornelius, ACI
‘A LEVEL PLAYING FIELD ACROSS THE COUNTRY’
“As they’ve merged, the airlines have been able to rationalize where they fly and how they fly,” said Matthew J. Cornelius, managing director of air policy for Airports Council International, which represents local, regional, and state governing bodies that own and operate commercial airports in the United States and Canada. Cornelius explains that airports in mid-sized cities like Memphis, which has lost 40.6 percent of its total flights since 2007 due largely to Delta shifting its focus to its larger Atlanta hub, are experiencing the side effects of mergers such as the 2008 deal between Delta and Northwest. This past June, Delta announced that Memphis International Airport would no longer be a hub for the airline as of Sept. 3, 2013, and that the number of flights Delta offered at the airport would drop by nearly one-third, from 94 to 60. Pittsburgh is going through a similar situation. From June 2007 through June 2012, Pittsburgh International Airport has seen 40.1 percent of its scheduled passenger flights cut.
‘We would certainly love to have more flights to make it easier and cheaper to get here, but we believe that because it has impacted so many other destinations that it has became the norm for everybody.’ -Jason Fulvi, VisitPittsburgh
How have these changes affected meetings and conventions business? According to Jason Fulvi, CDME, executive vice president of VisitPittsburgh, they haven’t made as big of a dent as one would think. “We initially thought it was going to be very detrimental to us,” Fulvi said of the increasing flight cuts. “I’m not saying it hasn’t had an impact, but it really hasn’t made that big of an impact. A lot of second-tier destinations are experiencing the same thing. It has created a level playing field across the country. [Many destinations] are dealing with reduced flights, losing their hubs, and passengers having to connect to get there. We would certainly love to have more flights to make it easier and cheaper to get here, but we believe that because it has impacted so many other destinations that it has became the norm for everybody.”
Although the decreases at first glance seem to be dramatically negative, industry experts like Cornelius and Swelbar say there are upsides. First, when major airlines like Delta and United take away flights from small- and mid-sized cities, it leaves open slots for low-cost carriers like Spirit, Alaska, and Southwest to fill them — which has already happened in Memphis, where Southwest recently announced it would start offering daily nonstop flights to Houston, Baltimore, Chicago, Tampa, and Orlando beginning this November.
“Airports that experience changes in air service, or have the potential to experience changes in air service, need to respond,” Cornelius said, “and Pittsburgh and Memphis have done that.” When Pittsburgh lost its hub status with US Airways in 2004, for example, low-cost carriers like Southwest moved in to fill the slots. This helped bolster service and offer more competitively priced fares to passengers. “Whoever the major carrier is benefits from that,” Fulvi said. “At one point, we saw flights to Washington, D.C., on Southwest that were very reasonably priced, at about $250. When those went away, US Airways was able to raise prices, because the competition was knocked out of the marketplace. So it’s an ebb and flow here, just like everyone else [is experiencing].” Cornelius added: “A lot of these places do their best to hold on to the airlines they have, but when circumstances change, they change, too.”
MORE THAN MEETS THE EYE
But it’s not always as simple as fewer flights equaling less service. At Salt Lake City International Airport, the total number of flights has decreased by 22.8 percent from 2007 to 2012, but today the airport offers service to more destinations and more nonstop flights than ever before, according to Scott Beck, president and CEO of Visit Salt Lake. Salt Lake City is a Delta hub, and as of July 2013, the airline offered 277 peak-day departures to 85 nonstop destinations.