2009 airline revenue: Worst drop ever
http://money.cnn.com/2010/01/20/news/economy/air_traffic_2009/index.htmInfluenced by the weak economy, the airline industry suffered. The total passenger revenue for the major U.S. carriers fell 18% (6% drop in passenger volume, and a 13% plunge in the average price paid to fly one mile) in 2009.
People save more and earn less due to the recession. The continuously rising unemployment rate makes people even more careful in money decisions. The total consumption decreased, and as a part of it, so did air traveling.
My prediction is that if passenger volume decreases or stays low over a long time, the airlines will slowly decrease the price of flight tickets (in the short-term price is sticky, but it's flexible in the long run), so that more people will choose air traveling. Although some people say the economy is recovering, I think it's recovering slowly at best. So this is likely to happen in the future.
I read an article not that long ago that American Airlines had joined their competitors in raising checked luggage fees. Most major air carriers started adding checked-bag fees in 2008. The increase in fees may be contributed to the decrease in revenue. According to data collected by the U.S. Bureau of Transportation, airlines have collected nearly $740 million in baggage fees in the third quarter of 2009.
ReplyDeleteThere are various places that airlines can look towards extra and higher charges in the future, which brings me to suggest that perhaps the prices will drop marginally. Whether it would be rising oil prices, checked luggage fees as suggested by Taleb, or the rising cost to some random element of flying, the cost of flying will not deter people from flying as prices for people can be perceived as semi-inelastic.
ReplyDeleteI believe that despite the losses and what the article suggests, the airline industry will have a relatively positive year with passenger traffic expected to grow by 4.5% in 2010, significantly different from 2009 with a decline of 4.1% according to an article posted on IATA. Meaning that a total of 2.28 billion people are expected to fly in 2010, bringing total passenger numbers back in line with the peak recorded in 2007.
http://www.iata.org/pressroom/pr/2009-12-15-01.htm
This is definitely going to continue for as long as the recession is around. Many companies are beginning to lose clients that are far away and demand flying to do business. As unemployment continues to climb in some states, airlines are going to continue to see a decline in air travel. It will be interesting to see how the it reacts as the summer comes around. Many families are choosing to drive to destinations that are closer and within driving distance for vacations in order to save money.
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