State of Aviation: Emerging from a Lost Decade

This post is part of a series in which LinkedIn Influencers analyze the state and future of their industry. Read all the posts here.

To appreciate the current state of the airline industry, it’s important to understand life both before and after 9/11. Before 9/11, the airline industry could be easily defined by two sectors: the traditional, high-cost “legacy” airlines, and a handful of low-cost carriers, like Southwest Airlines. The airline industry was relatively strong and stable, coming off a record year in 2000.

The year 2001 already was showing signs of recession in terms of traffic demand, but revenues were shattered after 9/11. At that point, we were all low fare carriers, low-cost or not.

Adding to the fragile air travel demand environment were rapid and substantial changes in airport security. This was occurring at precisely the same time that technological connectivity was further reducing the need for business trips. Finally, energy costs began an upward march, culminating in prices that are currently six-fold higher than in 2000. Transportation companies, especially airlines, have seen their cost structures rise precipitously, resulting in fares that are significantly higher. Soft demand and soaring operating costs are a bad combination. Toss in the worst recession since the Great Depression in 2009, and you’ve got a recipe for disaster. Travel demand is price-sensitive, and the result is that domestic travel hasn’t grown much, if at all, since 2000.

In the 13 years since the record year of 2000, every single high-cost, legacy airline has gone through bankruptcy at least once, consolidated, and radically restructured their labor contracts — to the extent that the only link to these airlines’ past and their current state is their name. Sensing opportunity, we’ve since seen the emergence of new low-cost carriers, some billing themselves as “ultra” low-cost carriers.

Despite the fact that the U.S. economy has grown about 30 percent during that time, domestic air traffic has remained relatively flat. One is hard-pressed to name another industry that has not grown as a whole in 13 years. It’s a remarkable figure.

Today, after the massive restructuring of the legacy airlines, and with high but stable energy prices, the industry has stabilized, financially. Profits are flowing, again. Debt is declining, and balance sheets are improving. However, because of higher fares driven by high energy prices, traffic and capacity are growing just moderately, if at all.

A stabilized airline industry is good news for travelers and good news for the economy as a whole. That is especially so when you consider that commercial aviation — particularly the U.S. airline sector — enables 10 million U.S. jobs and generates 5 percent of our nation’s gross domestic product. Every 100 airline jobs help support some 360 jobs outside of the airline industry. Together, the airline industry drives more than a trillion dollars in economic activity to our nation’s economy every year.

As the evidence clearly demonstrates, the biggest enemy to air travel is rising costs — they drive fares higher and that destroys price-sensitive air traffic.

Our biggest need as an industry is supportive government policies that recognize the vital role that we play in our nation’s economy. More than anything else, the United States government needs to replace its current patchwork of counterproductive policies, multiple taxes and fees, oppressive regulations, and antiquated infrastructure with a National Airline Policy that will enable the U.S. airline industry to grow again and reclaim its mantle as the global pacesetter.

One major component of a National Airline policy is for the Federal Aviation Administration (FAA) to work with the airlines to accelerate the implementation of a modernized, satellite-based Air Traffic Control (ATC) system, otherwise known as NextGen. If implemented properly, NextGen’s GPS backbone will allow aircraft to fly more directly and efficiently.

Today, the majority of U.S. air traffic is managed through 1950s technology, resulting in longer flights, less efficient use of our air space, increased fuel consumption, and delays and congestion. The good news is the tools and technologies exist in today’s modern jet aircraft — including the vast majority of Southwest’s fleet of Boeing 737s — to deliver immediate benefits for airlines, passengers, and the environment. While we have made some progress to implement NextGen in our nation’s ATC system, our federal government needs to do more — and to do it sooner rather than later. It’s in everyone’s best interest to expedite the implementation of NextGen and bring our infrastructure into the 21st century.

The airline industry has always been cyclical, vulnerable to risks of the capital intense, labor intense, highly regulated, overtaxed, and energy dependent environment in which we operate. I don’t foresee any of that changing — it’s a way of life in our industry. But the industry has responded to the extreme challenges that we have faced over the last 13 years, and we are emerging from the “Lost Decade” as a stronger, healthier industry.

Today, we find ourselves at the dawn of a new era. Indeed, the future is bright.

Photo: Stephen Keller/Southwest Airlines

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