Since economic deregulation started being implemented in 1979, the airline industry has been free to set routes, define capacity, and determine fares. In the almost four decades following deregulation, the aviation industry has undergone a series of transformations, as market forces replaced government intervention. The airline industry that emerged generally provides affordable and effective intercity transportation service and is essential to the modern American economy.
From a policy and economic perspective, airline deregulation has been effective. But, while available evidence suggests it has benefited passengers and the U.S. economy, after more than 30 years of full economic deregulation we may be entering a new era in commercial aviation.
Eno’s Aviation Insights aims to illustrate this new era by clarifying where the industry has come from and where it is headed from an independent, objective perspective.
The data presented in this project is designed to illustrate the key trends in the airline industry. Eno will update and supplement these data with more detailed metrics that can help evaluate how the airline industry is performing for consumers, airlines, employees, and the overall economy.
The U.S. airline industry has achieved a very high level of safety. In 2011, 2012, and 2014 there was no deaths on commercial aircrafts flown by U.S airlines. In 2013, there were two pilot fatalities as the result of a freight aircraft crash in Birmingham, Alabama. The last time a passenger was killed in a commercial flight operated by a U.S. carrier was February 2009, when Colgan Air Flight 3407 crashed in Clarence Center, New York.
The majority of transportation fatalities in the U.S. occur on roads and highways, with tens of thousands of people dying each year in passenger cars, motorcycles, and light-trucks. In comparison, buses, railroads, and air carriers have a much lower number of fatalities each year.
Air traffic has grown steadily at pace with the overall economy for decades. Large-scale events, such as the September 11, 2001 attacks or the financial crisis of 2007/2008, weakened demand in the short run. In 2015 the number of domestic enplanements reached almost 700 million, the highest figure ever. The Federal Aviation Administration predicts that in the next 20 years, enplaned domestic passengers will grow at an annual rate of 2.0 percent, reaching 1.052 billion by 2036.
The domestic load factor has been steadily increasing from less than 70 percent in 1995, to around 85 percent in 2015. This has both helped to accommodate the increased amount of flyers as well as keep per-passenger costs lower for airlines. The increasing load factors also mean the environmental impact per-passenger is lower.
Airline ticket prices have declined over 30 percent in real terms since 1979. In 2015 they fell to near historic lows. What has changed in the last decade is the role of new charges on services such as baggage, seat, and flight change fees. On average, ancillary fees account for $25 of the total fare of a round trip ticket or around 6 percent of total ticket price.
Two different sets of data are presented: the U.S. Department of Transportation includes taxes on their estimates but excludes zero-fare tickets (including frequent flyer miles redemptions) as well as a few abnormally high reported fares. Airlines for America includes all tickets but excludes taxes; “base fare” represents the round trip ticket price, while “total fare” includes the “base fare” plus ancillary fees.
Labor data is perhaps one of the most interesting aspects of the evolution of the U.S. airline industry over the last two decades. The number of total employees in U.S. airlines fell from more than 450,000 in 2000 to around 340,000 in 2014, a decline of 28 percent. However, this does not capture the use of contracted labor by the airlines, which expanded during the same period.
Average annual salaries have been kept at roughly $90,000 (inflation-adjusted 2015 dollars) per employee during from 1995-2014. From 2011-2014, salaries and benefits increased by 10 percent in real terms (i.e., after taking inflation into account) and in 2014 were close to $100,000.
While in 2000 labor costs represented around 45 percent of total airlines costs, by 2014 the figure was below 25 percent. This was due, in part, to the increase in the cost of fuel, which became airlines’ primary expense during this period. However, due to the lower fuel costs in 2015, labor become once again a larger relative expense in the first nine months of 2015. Fuel expense as a percentage of total expense has now reached levels unseen since 2004.
(Note that these data do not capture the contracting out of labor that the airlines are now using.)
Air traffic is dependent on economic cycles, with both business and leisure travelers flying less during recessions and economic slowdowns. For airlines this has meant cycles of boom and bust, with profitability in the former, and losses in the latter. This is a cycle that the airlines have never managed to break since deregulation, but recent bankruptcies and consolidation indicate a trend toward long-term economic with higher net margins. Since deregulation, average net margins in the industry have been below the average for U.S. companies (in a sample of around 7,500 companies).
The airline industry has gradually consolidated. The four largest carriers (American, Delta, United, and Southwest) now fly 76 percent of U.S. domestic passengers. Throughout these decades the number of seats that are available for passenger use have steadily increased.
(Available seat miles is the most common measure of capacity; one available seat mile represents one aircraft seat being moved one mile, for example, a 100-seat aircraft travelling 1,000 miles represents 100,000 available seat miles of capacity.)
In the two decades following deregulation more than 100 new airlines entered the market. Most of these disappeared quickly, either through merging with larger airlines or through bankruptcy. Between 1979 and 2012 there were 194 airline bankruptcies (although many of those bankruptcies resulted in restructuring and not in dissolution.) Since 2001, the pace of new entries into the market has declined steeply and only one major airline, Virgin America, entered the market.
While passenger totals at large hub airports (as defined by the Federal Aviation Administration) has increased over the past decade, small and medium size hubs have remained relatively stagnant. On the whole, scheduled flights have been decreasing in all airport categories.
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