Misunderstandings About Airline Growth

Consolidation is a myth. Data suggest that the airline industry is not consolidating. Competition is either increasing or almost constant, depending on the type of measurement. Hubs are here to stay because half the O–D travel in the world is in markets too small to be served nonstop. Fortunately, small markets are willing to pay. Hubbed carriers’ economic strength is observable in the US ticket price data. Growth has not lead to bigger airplanes—trend in airplane size has been flat to declining since 1985. The evidence is the same in all regions of the world. Big airplanes spend more time on the gate and turn slower, increasing system costs. For small airplanes, value is created by frequency. The share of the largest size shows significant decline. Industry real yields have been declining at 2–3% a year, but cost savings do not need to match this pace. Longer trips and leisure markets have lower yields, so yield can change as the mix changes, even while fares are stable. Data show flat business fares and leisure fares declining by 1% per year. Cost savings continue to match the decline in fares. Jets, high-bypass engines, revenue management, travel agency fees, and competitive wages have each had their turn in reducing costs.

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  • English

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  • Accession Number: 01049475
  • Record Type: Publication
  • Files: TRIS
  • Created Date: Apr 28 2007 10:20PM