Improvement trend in the US airline industry expected to reverse a five-year decline

The US air transportation industry is poised to begin producing real contributions to economic growth, according to a report by IBISWorld, Inc.

IBISWorld, an independent publisher of business intelligence research, stated that industry gross product is expected to reverse a five-year declining trend to a positive in 2007, and will expand in coming years reaching $44, 633.1 million by the end of 2012.

"While the industry turn-around is good for the airlines and carrier shareholders, consumers will still feel the turbulence when they fly," said George Van Horn, Senior Analyst, IBISWorld.

"High fuel costs, crowded planes, and unpredictable weather problems aside, more people will be flying this holiday season than in any previous year in aviation history," he said. "Even with rather dour travel predictions, the benefits of family gatherings or seasonal vacations must be worth it because the volume of holiday travelers continues to grow."

"The good news, easily obscured by the holiday chaos, is that the erratic, and painful shrinkage of the domestic airline industry may be drawing to a close," added Van Horn. "The turbulent market conditions that have confronted the domestic airline industry are well known. Even before the September 11 terrorist attacks, excess capacity (too many planes and not enough passengers) and high cost structures left many of the major commercial airlines in a vulnerable position."

He said, "Over the past five years, the resultant industry shakeout and competition with new low-cost carriers such as Jet Blue, Air Tran, and Skybus, has produced an astounding 22 airline bankruptcy filings, including such major carriers as US Air (filed twice), United Airlines, Delta Airlines and Northwest Airlines, among others. Another sign of continuing change in the industry is the recent rumor of a merger between Delta and United. If such a merger materialises, the combined carrier will likely be named United Airlines, and the US will lose another legacy carrier."

Perhaps more importantly, according to IBISWorld's analysis of available data, even though passenger counts and industry revenues have been rising, other significant measures of industry health have been consistently negative.

When breaking down aggregate industry measures, it is noteworthy that the domestic airline passenger segment has shouldered its share of constrained conditions. Larger planes have been increasingly used for the longer and more profitable international routes while the healthy air freight segment has also utilised more resources.

During the same five-year period, domestic passenger counts have expanded by nearly 20% yet available seat miles have only increased by 9.5%. Reductions in national carrier capacity and the increasing deployment of smaller regional jets put most passengers in a squeeze. More crowded planes not only restrict leg room, it helps increase fares.

Van Horn added, "The good news for domestic airline passengers will come slowly, yet many factors and conditions are positioned for improvement. For the first time in years, 2006 domestic load factors (revenue passenger miles/available seat miles) nearly equaled those for international flights. While this balance will never stand still, the recent improvement in the health of the domestic passenger segment is encouraging. The sheer size of the domestic market insures that it will play a significant role in determining future industry health and success."