Gale Warning

Nov 19 2007 Gale Warning BY admin TAGS Airlines

 

gale.gif On the coast they fly flags to indicate the weather forecast. Today I'm borrowing the one used for gale warnings...

 

I need to bring you up to speed on the current mood of the airline industry: gloomy.

 

The sudden and dramatic rise in energy prices, combined with a generally poor economic outlook, is forcing some to predict that airlines will begin scrutinizing existing markets for profitability. Revenue quality, not volume, will rule the day. Smaller markets will experience service cuts. In fact, just last week Allegiant Air cut six of its Las Vegas routes. The affected cities: Lansing, Springfield, Illinois, Champaign, Marian, Gulfport and Huntsville. The official reason for the cuts: high fuel prices.

 

What do I mean when I say "revenue quality," not "volume" will rule the day? Here's a simple example: suppose an airline flies to two markets. In one market a 50 seat plane is always 80% full and the fare is $50, In the other market a 50 seat plane is always 50% full and the fare is $150. Do the math. If you were the airline, which flight would you drop?

 

The challenge for airports in the coming year: maintaining the service they have. Airlines will expand only in markets where new service is a sure thing. In reality, that's the environment we've been operating in since the 2nd quarter of 2006. That's when the airlines began cutting back on the supply of seats and holding the line on the prices.

 

Where do we stand? At the end of October our total passenger count was up 2% for the year. We did this despite a zero percent growth in the number of flights. That's good news. It's tells us that the Springfield-Branson air market is strong. The next two or three months will tell the real story, though. That's when we'll know if today's bad economic news is having an impact.

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