Air travel in the U.S. grew at a rapid pace until 2001, expanding from 172 million passenger enplanements in 1970 to nearly 615 million in 2000. However, over the next 3 years, a combination of factors-the events of September 11th, 2001, an economic recession, and other factors-combined to reduce traffic back to 1995 levels. Nevertheless, air travel remains one of the most popular modes of transportation.
Airlines in this industry transport passengers and freight over regularly scheduled routes or on routes, called “charters,” specifically designed for a group of travelers or a particular cargo. Several classes of airlines function in the United States. There are 14 major passenger airlines- 11 passenger and 3 all cargo, which the U.S. Department of Transportation defines as having operating revenues of more than $1 billion. The largest of these, often called the “Big Six,” generally operate hub-and-spoke systems and also fly internationally. A hub is a centrally-located airport designated by an airline to receive a large number of its flights from many locations, and at which passengers can transfer to flights to any of the locations served by the airline’s system. In this way, the greatest number of passengers, from as many locations as possible, can be served in the most efficient way.
In competition with the Big Six are 6 to 10 low-cost low-fare carriers. These carriers have traditionally not used hub and spoke systems and offered flights between limited numbers of cities. They have primarily focused on flying shorter routes (400 miles or less) and on serving leisure travelers. But some low-fare carriers are expanding their routes to include longer transcontinental and nonstop flights. These moves have helped low-fare carriers expand their customer base to include more business travelers.
Another type of passenger airline carrier is the commuter or regional carrier. There are approximately 25 to 30 of these carriers. Regional airlines operate short- and medium-haul scheduled airline service connecting smaller communities with larger cities and with hubs. Some of the largest regional carriers are subsidiaries of the major airlines, but most are independently owned, often contracting their services to the majors. The regional airlines’ fleet consists primarily of smaller 19- to 68-seat turboprop and 30- to 100-seat jet aircraft. The regional airlines are the fastest growing segment of commercial aviation with 1 out of every 8 domestic airline passengers flying on a regional airline during at least part of his or her trip.
Air cargo is another sector of the airline industry. Cargo can be carried in cargo holds of passenger airlines or on aircraft designed exclusively to carry freight. Cargo carriers in this industry do not provide door-to-door service. Instead, they provide only air transport from an airport near the cargo’s origin to an airport near the cargo’s destination. Companies in the couriers and messengers industry provide door-to-door delivery of parcels either across town or across the continent.
Most sectors of the airline industry were in a downturn in 2002, with several passenger airlines having declared bankruptcy and others on the verge of doing so. After 6 relatively successful years in the late 1990’s, fueled by an increase in passenger volume and a booming economy, the growth in airline passenger traffic began to slow in 2001, coinciding with the economic recession. After the tragic events of September 11, 2001, passenger traffic dropped steeply, causing airlines to cut flights, lay off workers, and park surplus aircraft. Although passenger volume has since recovered somewhat, the growth rate in the industry will likely continue to be depressed for several years.
As the low-fare airlines continue to take market share away from the higher cost major airlines, and as passenger traffic remains lower, managing costs has become more critical to the survival of some airlines. Labor costs are the airlines’ largest cost component-amounting to 38 percent of some airlines’ operating costs-and reducing these costs is a key part of the recovery plans of several major airlines. Because the number of aircraft flight personnel often is fixed by passenger safety regulations, reducing costs usually involves getting the unions representing workers in the air transportation industry to renegotiate their contracts and agree to reduce wages.
The airline industry faces many challenges in the future. Airlines must focus on cost control, cash preservation and cautious growth. The goal of the industry is to be prepared to respond quickly to economic recovery. Passenger volume should slowly improve, but it will take longer for rapid employment growth to return to the air transportation industry.