The airline industry has seen some uncertain times within the last decade, but it has also had a surprisingly level of consistent growth since the 2001 terrorist attacks on the United States.
More than 2,000 airlines are currently operating within the industry, providing service to nearly 4,000 airports, 28 million scheduled flights, and more than 2 billion passengers.
Annual growth in the airline industry has been consistently 2x better than annual growth in the GDP and this is expected to double over the next decade. This means you can expect more flights, more destinations, and either similar or slightly higher costs depending on the flight as passengers seek out seats that are becoming increasingly scarce.
The US Airline Industry Trends You Need to Know
- Commercial aviation in the United States contributes 8% to the total GDP.
- More than 745 million passengers are served in the United States every year. This is about one-third of the total passenger count for the global industry.
- This has helped the US airline industry to generate total revenues that approach or exceed $200 billion on an annual basis.
- More than 11 million flight departures are scheduled from US airports every year.
- The US airline industry employs over 500,000 people on average, offering 31,000 flights per day, and has more than 8,000 aircraft flying at least one route on any given day.
- Revenues don’t always translate into profits, however, and this has caused many US airlines to add additional fees to the cost of flying, such as Ryanair pushing a charge to use aircraft toilets in 2010.
- The average first bag checked fee in the US is $25 per bag. A second bag fee is $25-$45, while a third bag fee is $50-$150 depending on the airline.
- Despite these fees, the cost per passenger is still 30% less [when accounting for inflation] than it was in 1976.
- Just 9 airlines have gone bankrupt, although several mergers have taken place, leading to the rise of low-cost airlines in the US which account for 25% of all airline traffic today.
- The net profit per passenger experienced by the US airline industry in 2015 was $18.12.
The US airline industry is what fuels the global industry. Thanks to the size of the US, flights are the only method for people to efficiently travel the long distances which may be required for business or pleasure. This means there will always be a demand for domestic flights, while international flights continue to be popular. It is because of this the industry is thriving despite the threats that may be working against it on any given day. Americans have a need to travel and the airline industry makes that a reasonably affordable proposition.
Comparing Revenues and Profits for the Airline Industry
- The airline industry has doubled over the past decade, from US$369 billion in 2004 to a projected $746 billion in 2014.
- 25% of the revenue growth has been seen with low-cost carriers, reflecting the amount of passenger traffic they are receiving on an annual basis.
- The average profit margin for an operating airline right now is just 3%.
- Since the 1950s, airline yields, which are defined as the average fare paid by a passenger per kilometer, have consistently dropped.
- Jet fuel typically accounts for 40-55% of operating expenses, which is the biggest lever to control costs for the airline industry, but one that is also primarily outside of their control.
- Consumers benefit from lower oil prices with lower fares, more routes, and spend 1% of world GDP on air transport.
- In the last IATA report available, the North American region performed best with a 7.5% net post-tax profit margin in 2015. Africa was the weakest region with just a 0.8% post-tax profit margin.
- Airlines and their customers are forecast to generate $116 billion in tax revenues this year.
Consumers have always expected to receive a certain level of increasing service for the products or needs they purchase. For the airline industry, the struggle has been a lower per-passenger cost, but higher per-passenger demands for specific services. This is why proposals to charge for extra bags or charging bathroom fees have been floated around. By offering customers the opportunity to customize their flying service, albeit for extra costs, a greater level of comfort could be achieved. Some airlines like Emirates take that idea to a new level with private rooms and showers. Yet the complexity of this industry continues to keep profit margins low and that will continue to be a struggle with upcoming trends.
Labor and the Airline Industry
- About 2.5 million jobs were added within the airline industry in 2015, a gain of 3% over figures from the year before.
- Employment costs for the airline industry in 2015 were $150 billion and are consistently rising at 5% per year.
- Unit labor costs are forecast to be reduced by 0.5% in the coming year, which when combined with available ton kilometers of 490k per worker, help to keep costs under control for the industry.
- This means airline industry workers are 3.2% more productive within their job duties in 2015 compared to the year before.
- The direct Gross Value Added for national economies, generated by the average airline employee, will rise 2.7% this year to almost $97,000 a year.
- The time passengers waste in flight delays is a consumer cost worth an estimated $4.7 billion. Inefficient airspace in Europe costs an estimated $2.9 billion per year to the industry as well.
Many industries are focusing on becoming “lean and mean” not because there is a recession in place, but because there may be one in the future. This is why employees are encouraged to be more productive as it cuts labor costs. The risk of this is added burnout to each employee and money lost in higher employee turnovers, but should the airline industry get it right, the savings it could achieve could be in the billions of dollars on a global scale.
Are Times Changing for the Airline Industry?
- New destinations are up 1.7% in 2015 and frequencies rose even further than that.
- Global revenues spent on air transport in 2015 are expected to contribute 1% to the world’s GDP.
- Air travel accelerated in 2015 with a growth of 6.7%, which was the best year for air travel since 2010, exceeding the 20 year median 1.2%.
- The average return fare (before surcharges and tax) of $429 in 2015 is forecast to be more than 64% lower than 20 years earlier after inflation adjustments.
- Airline CFOs and heads of cargo reported in April that they expect growth in passenger services over the next 12 months to be as strong as in 2010 and early 2011, although fragility in Europe and APAC could temper these results.
- The value of international trade shipped by air this year will be $5.9 trillion, lower than the previous year only because of changes in monetary value.
- Tourists will spend an estimated $651 billion on additional services related to their air travel, including lodging, meals, and miscellaneous needs.
- On invested capital of almost $700 billion, the industry is forecast to generate $4.9 billion of value for investors this year.
- This year commercial airlines will take delivery of more than 1,700 new aircraft, representing an investment by the industry of around $180 billion. 50% of these deliveries are intended to replace existing fleet aircraft that are aging as an effort to increase fuel efficiencies.
- There is expected to be 3.7 million available seats for the airline industry on any given day, with passenger load forecasts believed to be able to rise above 80%.
- In 2015, there was an average of 67 aircraft departing from the gate around the world at any given minute.
- The average number of seats in an aircraft has increased by 5 in the last 3 years to 139 available seats.
- Taxation revenues have increased by $9 billion since 2013 and are expected to rise at the $4.5 billion median annually through 2020.
- The number of unique city pairs for flights has increased by 199% since 1994 data was released.
When jet fuel prices fall, there is a lot of operating revenues suddenly available for the airlines and they are reinvesting that cash instead of pocketing it. This is why new aircraft are being purchased and that helps to support jobs throughout the economy. There are an estimated 60 million jobs in the world today that exist because of the supply chain the airline industry requires. This is why continued low prices on crude oil is a good thing for this industry, even though it may be harmful for other industries. Ticket prices can be competitive, fuel costs stay low, and airlines get to invest into their infrastructure to be competitive now and into the future.