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« Previous Story | The Industry Report Home Page | Next Story » 'Uncharted Territory In The Skies,' Says Aviation Trends Analyst BoydBy Roger Leo 
"Economics have changed, affecting who can fly, where you can go, and when you can fly," said Mike Boyd, president of The Boyd Group, a consulting firm that analyzes aviation trends. Boyd told webinar participants the future is going to be "pretty much like it looks today, only truncated. There won't be as many seats, and it's going to cost more to fly. No community that has air service is going to lose service; it's just going to be more expensive," he predicted. He blames rising oil prices, inefficient jet engines, persistent chaos in many facets of the airline industry, and trouble across much of the American economy that have combined to create unprecedented challenges in aviation. "The airline industry is entering uncharted territory. It's not a cycle. It's different from anything I've seen in a couple of decades," Boyd said. The result: Aviation is shrinking at the top and the bottom. "There are basically two types of carriers: Comprehensive, legacy carriers and low cost carriers. All are contracting because you just can't make money in as many ways with an airplane as you used to be able to," Boyd said. "No airplane flying today is designed to fly with oil at $90 a barrel, never mind $140." Boyd projected a fall in demand because discretionary dollars are being sucked out of the economy, with airlines at the periphery of the aviation empire hardest hit. Meanwhile comprehensive network carriers also are trimming. American for example might cut service between Chicago and Denver from eight flights to seven. "There's no real opportunity for anyone else to fill that gap. Airlines will be operating fewer seats," he said. Boyd says airlines are scrambling to cut costs and increase revenues, sometimes at the expense of market share. Passenger reductions will come as seats are cut and prices rise, and as consumer spending drops in the face of personal economic hardship. "There are markets out there, like Salem, Ore., to Salt Lake City, which will be gone. There are not enough revenues to make it work. They can't support the cost of the airplane," Boyd said. As for mountain travel, this year over last, the number of seats is going to drop by 10 percent; by mid-year, it's going to be 12 percent. For every one percent reduction in capacity, there's a .9 percent reduction in passenger traffic, so that means we'll see an eight or nine percent reduction in passenger traffic. "Some destinations, like mountain resorts, are going to have much higher fares, and at what point do people say, 'I'm going to rent a car'? The Northeast could have a better season because the uncertainty over gas prices goes away," he said. Some resorts have deals with airlines that ensure air service in return for revenue guarantees. "If they don't meet the revenue guarantee and have to shell out $500,000 – easy to say, it's not my money – but so what if Vail has to shell out money to American Airlines. What's the net benefit? Probably more than $500,000," Boyd said. Uncertainty includes passengers, who face an array of hidden fees for extras. "We're not going to know how much it costs to fly. The fare is just a down payment. The full cost involves how much in baggage fees and all the other jive, like a window seat. We're looking for at least a 15 percent bump of moving yourself and your luggage by air by this time next year," he predicts. The cost of flying with two bags, a boot bag, and skis, is different from airline to airline, he explained, with one sampling of four air carriers showing a range of fees from zero to $130, $190, and $240 in extra bag charges each way. Boyd suggested FedEx might offer a better alternative for getting gear to resorts in the face of this reality. At the same time, airline industry unions are angry at what they see as piggish management in the wake of union concessions five years ago, and want pay increases, Boyd said. Add in major structural problems facing the airline industry. These include an air traffic control system in need of overhaul, and chronic delays that result from what he called a major constriction of the air transportation system. "The FAA has done nothing through multiple administrations. Congress doesn't know what to do about it, and it's doing nothing. The system is going to have more and more constrictions due to delays. The regulators are all in la-la land. The current administration's idea to reduce delays? 'Let's increase the penalties for involuntary bumping.' That's approximately one-sixth of one percent of all passengers," Boyd said. What It Means: "Be very careful assuming the world is going to collapse. Decision-making is on hold right now," Boyd warns. What's certain is nothing is certain, except there will be fewer seats and higher costs across the spectrum. « Previous Story | The Industry Report Home Page | Next Story » Comments
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Posted by: Jim MacInnes | November 3, 2008 04:08 PM
