What's up with the airlines?
The standard answer these days is that controlled capacity growth and the new model of charging fees for ancillary services have enabled carriers to fill their planes and boost their bottom lines like never before, and that consolidation in the form of mergers and alliances has probably helped this process along.
And if you happen to be in the front of the plane, the creature comforts are getting really good.
This pretty much sums it up for the average citizen, and it's not wrong.
But some recent reports from the government and private sector suggest to us that the standard answer doesn't connect all the dots.
The Government Accountability Office (GAO), for example, was recently asked by Congress to report on the state of the industry in the wake of recent mergers.
The GAO's report acknowledged that "consumers have experienced higher airfares, additional fees and fewer flights in certain markets," but said they are also benefitting from "new services and expanded networks."
As for the perception that there's less competition, the GAO claimed that "the average number of competitors has not substantially changed in markets traveled by the majority of passengers," which is putting a bit of a spin on things. The GAO defines an "effective" competitor as an airline with as little as 5% of the market and it counts both nonstop and connecting services, an approach that tends to inflate the number of "competitors."
Even with these inflators, the GAO found that between 2007 and 2012, the average number of competitors in smaller markets declined by 9% (from 3.3 to 3) and the number of "dominated" markets (i.e., those where one airline has 50% or more of the traffic) rose 5 percentage points, to 77%.
Even after observing that "low-cost airlines are exerting less pressure on fares," the GAO avoided the obvious conclusion that competition has declined.
But we believe it has, and we believe the traveling public has figured it out too.
When the U.S. Travel Association recently surveyed 1,031 travelers about their concerns and frustrations, it asked the question, "Which of the following factors, in your opinion, is most directly responsible for the increased cost of air travel?" The leading answer among both business and leisure travelers was "Airlines reducing the number of available flights."
They know what's up. But there's still a lot that even the experts don't know.
The airline industry has been in a growth mode since it began. There have been contractions from time to time because of economic trends or other external factors, but it is rare for this business to undergo a prolonged period of deliberate slow growth such as what we are witnessing today. The implications of this trend may go beyond rising fares and a reduction of consumer choice in smaller markets.
The Transportation Department's Inspector General, for example, recently analyzed the pattern of flight delays and cancellations and found, surprisingly, that as the number of competitors goes down, flight delays did not increase significantly, but the length of those delays increased by 25%. Moreover, when competition declined, cancellation rates rose substantially.
This is a correlation that, as far as we know, has never been documented before. Is it an unexpected side-effect of the new airline industry paradigm?
The DOT report didn't attempt to explain why this is happening, but the data seem to suggest that as competition declines, passenger service suffers in ways that are unexpected and perhaps unknown -- until somebody connects the dots.