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August 16, 2013

CONVENE -- Up in the Air: Winners and Losers in U.S. Airline Cuts

By Jennifer N. Dienst, Convene, Contributing Editor

Maybe you’ve noticed the changes and confusion that the U.S. airline industry is experiencing — consolidating or eliminating routes and reducing airlift at destinations across the country. According to William S. Swelbar, research engineer for the Massachusetts Institute of Technology’s International Center for Air Transportation (MIT-ICAT), it comes down to a single factor that is driving the upheaval: oil prices.  In 2011, U.S. airlines paid an average of $2.94 for a gallon of fuel, according to the U.S. Department of Transportation — 51 percent more than what they paid in June 2000. 

“The push to cut capacity in the [airline] industry can be placed at the foot of oil prices,” said Swelbar, one of the authors of a new MIT-ICAT study, Modeling Changes in Connectivity at U.S. Airports: A Small Community Perspective. “This industry was built on the price of oil at roughly $20 a barrel. In 2008, when oil prices hit $147 a barrel, the airline industry recognized that it was simply operating more capacity than economics could support.”

Since the recession began in 2007, 25 U.S. airlines have ceased operation or filed for bankruptcy. Now, with the impending American Airlines-US Airways merger, the future of domestic air travel within the United States will ride on just four major carriers: Southwest, Delta, United, and American. As a result, airports are seeing their flight capacities cut and the number of airline options available to passengers diminished.

Almost all major U.S. cities have seen decreases in the number of flights serving their airports since 2007 — from a loss of 7.4 percent in Chicago to 18.9 percent in Orlando, according to the MIT-ICAT study, which was released in June. But the study also reveals that small- and mid-sized airports in the United States have been disproportionally affected. For example, former hub cities like Pittsburgh, Memphis, and Cincinnati have lost upwards of 35 percent of their flight capacity in the last six years.

The study found that from 2002 to 2012, more than 14.3 percent of yearly scheduled domestic flights were cut from the U.S. air-transportation network. Smaller airports lost 21.3 percent of their scheduled domestic flights compared to just an 8.8-percent decline at the 29 largest U.S. airports. “What the industry is doing is better matching its capacity to the demand in that airport marketplace,” Swelbar said. “Now, you have four meaningful competitors in all four corners in the U.S., whereas before, the industry was more regionally focused.”

That means, according to Swelbar, that “there are going to be winners and losers in the airport community, no question.” The broad numbers would suggest that second-tier destinations are going to absorb some of the worst of it — but that’s not the whole story.

Read more at convn.org/airline-cuts.

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