Carol L. Cook
On the other side, we find that the U.S. Airline Industry is poised for the beginning of a long-term upward cycle as the market emerges from a reorganization characterized by more consolidation at several major hubs and routes and by declines in excess capacity.
For the near term, most of the fundamental problems affecting the major airlines appear to have bottomed out. Fuel prices have returned to manageable levels, and the effects of future price hikes will be mitigated by the influx of newer, more efficient aircraft. Although absolute expenditures will probably rise, fuel costs per available seat mile also will be held in check by the increases in long-haul flights.
The decade ahead for airlines will be recognized as the time of huge fleet expansion. Deliveries of all types of jet transports are expected to range such year between 600 and 700 aircraft to the year 2000. These new aircraft will replace less efficient aging and noisy transports and are earmarked as growth aircraft to meet the projection of rising traffic demand.
The rush to buy new aircraft has created for manufacturers the longest backlog in history. A buyer must wait until the mid-1990’s for delivery of most models.
Such a hardware expansion has implications for airline personnel and training, maintenance and facilities. Airlines are preparing for this growth and changing times in their own ways.
The bigger airlines are attempting to get bigger, to form with other carriers to develop traffic feed, and cover as broad an area of the globe as possible. This kind of growth has become possible in the electronic age, when computers aid in offering the mix of discount and full-fare tickets, and computer reservations systems facilitate ticket distribution.
Growth of the world airline business may have been inherent in spite of rigid economic regulation by governments. But, the deregulation movement, which began in 1978 in the U.S., certainly put the spur to cargo and passenger traffic here, and it is having similar responses elsewhere.
Competition is intensified when regulations are removed from an industry reasonably equipped with aircraft capacity. With competition comes reduced fares. In the post-deregulation period through 1988, average fare and rate levels on a world scale declined by 7.5% a year. In strict economic terms, the fares dropped because unit costs, or aircraft costs, were reduced with efficiency improvements. At the same time, more people were flying, causing an increase in the load factor.