“The record summer travel that we are projecting is being driven by low fares, strong employment growth, record household income, real GDP growth, and corporate profits resulting in demand for premium travel,” says Airlines For America’s John Heimlich.
Severe weather systems, the Boeing 737 MAX’s prolonged grounding, and rising passenger demand has not dented airlines’ historically low air fares as the summer travel season enters its deepest period, Airlines For America says.
Following up on A4A’s Summer Travel Report, Kambr Media checked in John Heimlich, the Washington, DC trade organization’s chief economist, for an update on how the predictions for record-setting air travel were tracking.
In its May report, A4A forecast a record 257.4 million passengers — an average of 2.8 million per day — would be flying on U.S. airlines between June 1 and Aug. 31, 2019. That’s an increase of 3.4 percent from summer 2018’s previous record of 248.8 million passengers.
Airlines are adding 111,000 seats daily to meet the needs of an extra 93,000 daily passengers projected during the season. As A4A noted, this would be the 10th straight summer to show a clear gain in the number of U.S. airline fliers.
That forecast was largely borne out last week by JetBlue’s June traffic numbers. The low-cost carrier, which recently began prepping its first transatlantic flights for 2021, said traffic was up 4.7 percent from June 2018, on a capacity increase of 4.8 percent. Still, load factor for June 2019 was essentially flat 86.9 percent compared to the same month a year ago.
Satisfaction Still Strong
At the same time, flier satisfaction also appears to be holding stable as the peak summer travel period (late July to mid-August) looms. Around the same time A4A issued its summer forecast, consumer analytics provider JD Power issued its survey of 5,966 passengers between March 2018 and March 2019, which found that “overall satisfaction with airlines to its highest point in history, up 11 points (on a 1,000-point scale).”
“Airlines continue to deliver on the operational side of air travel,” said Michael Taylor, Travel Intelligence Lead at J.D. Power, in a release. “New technology investments have dramatically improved the reservation and check-in process. Fleets are newer and travelers generally feel that they are getting great value for their money. These improvements have been most profound in the traditional carrier segment, where customer satisfaction has climbed considerably.”
In terms of the billions in reinvestment into airlines’ “product,” carriers tend not to break out capital expenditures into various line items. And it’s worth pointing out that ancillaries like in-flight wi-fi and food services are part of operating expenses, not capital investment. Still, it’s been estimated that two-thirds of capital expenditures go toward aircraft acquisition.
Aside from additional investment in airline fleets and equipment, the A4A also pointed to another reason for higher demand and flier satisfaction: historically low air fares.
Adjusted for inflation, U.S. air fares declined for a fourth consecutive year in 2018, when the average domestic fare fell to $350, including government-imposed fees and taxes, A4A reported. “That ticket price is down 15.9 percent from 2014 and, according to the Bureau of Transportation Statistics, it is the lowest average inflation-adjusted fare since the agency began collecting such records in 1995,” A4A said.
Still, airlines are concerned about one thing amid all this positive feeling: the Passenger Facility Charge (PFC), a fee included in almost all U.S. airline bookings in order to support airport infrastructure maintenance. Congress is currently debating whether to double the current $4.50 PFC fee for each segment of a flight, with opponents like Capital Policy Analytics’ Ike Brannon arguing in Forbes that airline tickets are subject to sundry other taxes, such as a 7.5 percent federal excise tax, a $4 segment fee, and a $5.60 security fee.
Kambr Media: Summer air travel was projected to rise 3.4 percent for an all-time high of 257.4 million passengers. As the report notes, consumer confidence has remained high. Over the last few days, intense storms were threatening states in the south and Midwest regions, and trade war issues continue to threaten more economic volatility (though the Dow Jones hit its latest high less than a week ago). Plus, the Boeing 737 MAX grounding continues to cast a shadow. How much of these issues have been baked into airlines’ operations?
John Heimlich: Airlines routinely modify their schedules to respond to new developments impacting operations. With the initial 737 MAX grounding, for example, U.S. carriers rebooked more than 99 percent of the affected passengers within 24 hours.
In order to minimize the impact on travelers, airlines are utilizing spare aircraft, deferring discretionary aircraft maintenance such as repainting, and in some cases reducing or temporarily suspending certain routes.
Are there any other trends besides the strong economic numbers on the positive side, or the problems mentioned above, impacting the A4A forecast at the moment?
The record summer travel that we are projecting is being driven by low fares, strong employment growth, record household income, real GDP growth, and corporate profits resulting in demand for premium travel.
With inflation-adjusted fares having declined for four consecutive years, flying has never been more affordable, so it’s no surprise that people are flying more now than ever before.
Airlines offered 4 percent more seats in 2019 (3.2 million). The growth rates have seemed fairly steady since 2013. Was there anything unique in 2018 and 2019 driving the rise?
The increase in supply is being driven by a healthy U.S. airline industry, growth in demand and an influx of new, more revenue-friendly and cost-effective aircraft, which our carriers have invested in.
In terms of maintaining the balance between high demand and low fares, how important is the role of ancillaries in terms of keeping fares low?
Ancillaries are important because they allow airlines to offer just the fare to customers who prefer not to pay for extras, and they allow full-service carriers to match fares offered by ultra-low-cost carriers.
Airlines are naturally concerned about a doubling of the PFC – which could add an additional $72 – or $144 total for a family of four – to roundtrip tickets. The proceeds of the tax would go to improving airport infrastructure, which is clearly necessary given the higher demand for air travel. Is there an alternative plan from the airline industry? What’s the argument for keeping the PFC the same?
The flying public already pays $6.9 billion a year in taxes supporting U.S. airports, and with airports already flush with cash, it’s simply irresponsible to ask them to pay more. PFC revenue has more than doubled since 2000, going from $1.6 billion to a record $3.5 billion in 2018, and it’s projected to rise again in 2019.
Furthermore, over $200 billion has been invested in airport improvement projects across the country since 2008, and there are a variety of funding sources that airports can tap into before asking passengers to pay more taxes: The Airport and Airway Trust Fund (AATF) has an uncommitted balance of $7 billion, which is projected to climb to $47.7 billion over the next decade. Airports also have $16 billion in cash on hand.