A new Department of Transportation Inspector General's report outlines the way high fuel prices and a stubborn recession are changing the fundamentals of the airline industry, and that these changes mark the industry's ability to adapt and survive.
And that's a good thing, because the airline industry is one of the most important in the U.S. economy, says the report.
The report said that to survive, the airline industry has had to adapt by charging fees for services once included in the cost of an airline ticket and by introducing new services and amenities and charging for them, as well.
They're reducing the number of scheduled flights, and filling vacant
seats. And the industry is rapidly consolidating, reducing the number of airlines serving the bulk of the domestic passenger market from 10 in
2000 to 5 in 2012.
Airlines have become more aggressive in adjusting fares and flight schedules in response to what's happening to fuel prices and passenger demand. The result is good news and bad news for travelers.
The good news: a "significant" drop in flight delays and cancellations, according to the report.
The bad news: less service at some hub airports and for short-haul flights of 500 miles or less. That limits consumer choice.
One big reason for all of this — fuel. A surge in prices pushed fuel expenses to 35% of airline operating costs in 2011, near the all-time high of 40% in 2008, the IG's report said. Despite the rising cost of fuel, the airlines have successfully maintained non-fuel operating cost near their previous levels.
At the same time, airlines are dealing with decreased demand due to the recession. The report said that per capita income rose continuously for most of the last decade — except during the 2008-2009 recession. Since then, income levels have again begun to rise, but at a slower pace than in previous years.
Fuel prices, the economy and competition have made life particularly tough for legacy carriers which, lost $62.8 billion between 2000 and 2009. Low-cost carriers, in contrast, reported $2.1 billion in profits during that same period.
Again, the IG found some positive news. Since 2009, legacy airlines have reported improvements in profits.
The report concluded by saying "that some of the most significant trends of recent years — including but not limited to a more consolidated industry with less competition, fewer flight options for small communities and revenue-enhancing baggage and other fees — may continue for the foreseeable future as airlines further improve their adaptability to changing market forces. Follow Kate Rice on Twitter @krtravelweekly.