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December 2009/January 2010 – Web Exclusive

Texas Airlines in a Down Economy

Many travelers, especially business travelers, have been put off by recent fare increases and fees.

Flight line  becomes a tight line.

by Michael Castellon

Since the 1950s, air travel has been deeply embedded in the American way of life. Formerly considered a luxury, today it plays a major role in moving the world’s travelers, cargo and economies.

But the current economic climate has hit the travel industry hard. Business travel is down and families are vacationing closer to home. And Texas airlines are feeling it.

Rough Skies

While conditions are particularly bad at present, the financial condition of most airlines has been bleak for years. The industry has been losing revenue since the 2001 terrorist attacks, with skyrocketing fuel costs and the general recession further hindering revenue.

“The economy has had a significant impact on all businesses, including the airline industry,” says Southwest Airlines’ Christi Day. “Fewer people are flying. Travel budgets are often one of the first items cut to save company money.”

In the first half of 2009, airlines lost about $6 billion, according to the International Air Transport Association (IATA), a Geneva-based industry group representing more than 200 airlines worldwide. IATA expected that figure to exceed $9 billion by year’s end.

The U.S. Bureau of Transportation Statistics reports that U.S. passenger airlines employed about 5.1 percent fewer workers in September 2009 than in September 2008, in the 15th consecutive month of year-over-year losses in employment.

In November, U.S. Transportation Secretary Ray LaHood said he will create a special panel to help identify solutions to the airline industry’s financial problems.

Unfriendly Skies – for Jobs, Anyway

As of September 2009, full-time employment at U.S. passenger airlines had registered year-over-year declines for 15 consecutive months.

Change in Full-Time Employment,
All U.S. Passenger Airlines
(Percent)

Source: U.S. Bureau of Transportation Statistics

Change in full-time employment for U.S. airlines is also available in the table below.

Texas Air

Texas is home to three of the nation’s largest airlines – American, Southwest and Continental (see “Corporate Giants” in June/July 2009 Fiscal Notes). All three make important contributions to the Texas economy. American alone has about 25,000 employees in Texas.

When a business operation works at the scale of a Southwest Airlines, which oversees 35,000 employees and more than 3,000 daily flights, staying competitive can be a daunting challenge. Maintaining customer satisfaction while protecting revenues – or at least minimizing losses – has become a delicate tightrope act for the airline industry.

A recent survey by Sabre Holdings, a Texas-based company specializing in travel reservations technology, found that 86 percent of 90 airlines surveyed said that customer loyalty had the most influence on their bottom lines.

Many travelers, especially business travelers, have been put off by recent fare increases and fees, perhaps the most controversial being new fees for checked baggage, some of which run up to $50 per bag depending on destination.

Southwest has been touting a “Bags Fly Free” program with some success. The program allows flyers to check up to two bags without additional fees. In October 2009, the carrier filled slightly more than 79 percent of its seats, the best October “load factor” in the company’s history.

American also saw better load factors, filling 83 percent of its seats in October, up from 79 percent in October 2008. In September, American and American Eagle parent-company AMR announced a plan to decrease flight offerings to less profitable destinations and to reallocate flights to hubs in Dallas/Fort Worth, Chicago, Miami and New York, areas the company has identified as the cornerstones of its flight network.

Such cost-cutting moves, while necessary to boost profitability, can often have a significant impact on travelers, especially those who fly for business. Earlier this year, for example, American ended its direct flights from Austin to San Jose, flights affectionately called “nerd birds” due to their connection to two popular high-tech markets.

Cutting Losses

Even Southwest, an airline with a proven knack for optimizing its revenue through a no-frills approach and non-traditional practices such as open boarding, hasn’t been immune to the current economic climate. But the company’s third-quarter losses for 2009 narrowed from a year earlier, largely due to cost-cutting initiatives. The carrier reported a net loss of about $16 million for the quarter, compared with a $120 million loss for the same period in 2008.

Fort Worth-based AMR Corp., which operates American Airlines and American Eagle, reports that in October, Eagle passengers flew 680.1 million miles, up from 641.8 million miles during the same period in 2008.

Traffic at American fell by 2.6 percent in the same time period.

American reported third-quarter 2009 revenues of about $5.1 billion, down more than 20 percent from the same quarter of last year. The company points to reduced capacity and reduced demand for air travel and cargo due to the economic downturn.

Houston-based Continental reported a third quarter loss of $18 million, compared to a $230 million loss for the same period in 2008.

Still, Texas airline officials are continuing to lean on basic principles of customer satisfaction to see them through economic challenges.

“This past year, despite the economy, we’ve actually added four new destinations,” Day says. “We’ve introduced our pet program, PAWS, a new mobile Web site and several other products. Customers can expect full flights, but also hospitality.

“Our employees have worked incredibly hard to lower costs and work more efficiently,” she says. “We consider our company a cause.” FN

Table for Unfriendly Skies – for Jobs, Anyway

As of September 2009, full-time employment at U.S. passenger airlines had registered year-over-year declines for 15 consecutive months.

Change in Full-Time Employment,
All U.S. Passenger Airlines
YearPercent Change
July 2007 – 2008-0.2%
August 2007 – 2008 -02.1%
September 2007 – 2008 -04.5%
October 2007 – 2008 -05.7%
November 2007 – 2008 -06.5%
December 2007 – 2008 -06.7%
January 2008 – 2009 -06.7%
February 2008 – 2009 -06.6%
March 2008 – 2009 -05.7%
April 2008 – 2009 -05.5%
May 2008 – 2009 -06.8%
June 2008 – 2009 -06.3%
July 2008 – 2009 -05.9%
August 2008 – 2009 -05.5%
September 2008 – 2009 -05.1%

Source: U.S. Bureau of Transportation Statistics

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