41M Empty Seats in 2009, or Worse

U.S. commercial jetliners will carry 41 million fewer paying passengers this year, a decline in the head count that will stretch into at least 2010, according to Mike Boyd, president of the Boyd Group, an aviation consultancy based in Evergreen, CO. To make matters worse, he believes U.S. passenger levels may not again reach 2008 levels until after 2014.

Using 2008 as a baseline, the forecasted decline in passengers expected through 2011 represents major losses in aviation revenues for both air carriers and airports.

Boyd says the airline industry will take in $25 billion fewer dollars 2009 through 2011, assuming no material improvement in fare levels. At the same time, airports will capture $573 million less in Passenger Facility Charges (PFCs), a major source of airport improvement funding. And Uncle Sam will also suffer with federal taxes and fees collected on air travel also dropping. Over the three-year period, the federal government will take in $4.9 billion less than if enplanements remained at 2008 levels. Assuming that capacity cuts are successful in maintaining high load factors, and match or exceed the decline in consumer demand, the U.S. airline industry will experience a revenue decline – net of taxes and fees – of almost $7 billion in 2009, and over $9 billion in 2010, compared to 2008, Boyd forecasts.

This projection results from the firm's U.S. airports enplanements forecast (2009-2014) and is based on analysis of data from 146 U.S. airports, representing 95 percent of all U.S. air traffic. Describing three scenarios, the data indicates wide volatility for the industry in the coming years.

Translating enplanements into passenger trips, the baseline forecast is for a drop from the 619 million passengers in 2008 to 578 million in 2009. Depending on the depth of the recession, the number of empty seats on U.S. jetliners could double in 2010, reaching 93 million. Even with the most optimistic scenario, there will be 42 million fewer passengers in 2010 than in 2008, Boyd believes.

The forecast considers a range of potential economic conditions brought on by the economic recession, resulting in high, low, and baseline (most likely) traffic demand scenarios. The baseline and high scenarios reflect a rebounding economy at the end of 2010. The low scenario reflects a situation where national GDP and economic recession stay in place or worsen during the forecast period.

``Our model assumes a return to economic stability in 2011,'' says Boyd, president of the Colorado-based research firm.

Boyd believes a federal stimulus bill being considered by Congress will do nothing to shore up air travel demand. The Obama administration is expected to dedicate at least $5 billion in its stimulus package to upgrading airports and other aviation-related projects. “Let’s stop kidding ourselves. The stimulus plan won’t do anything to spark more consumer spending and air travel is particularly vulnerable in 2009,” he said.

Daily media reports regarding job losses and business failures deter consumers from spending on air travel. Boyd says airline ticket sales won’t fill airliner seats during hard economic times. “Consumer confidence is going south – fast – along with disposable dollars,” said Boyd.
“Consumers will be keeping their thinning wallets in their pockets. When you fear losing your job, a $79 fare to Orlando doesn't compute.”

One wild card factor that will materially affect the forecast is consumer confidence. ``There is no guarantee that the recession will not result in demand suddenly plunging,'' warned the oft-quoted airline industry analyst. ``If consumers really get spooked about spending, all bets are off. Air travel demand could fall off a cliff in the first quarter of 2009.”

“Considering the near-certain fall in demand caused by a combination of the recession and consumer uncertainty, the message is clear: in 2009, the U.S. airline industry may find itself jumping from the fuel-price frying pan into the reduced demand fire,” he added.

But U.S. airlines are now accustomed to operating in crisis mode since 9/11 with last summer's unprecedented spike in the price of oil just one more challenge. Analysts are even predicting that the industry as a whole could produce black ink this year.

One soothsayer believes U.S. air carriers could earn upward of $3.5 billion this year after losing an estimated $4.5 billion in 2008. Some Wall Street analysts expect U.S airlines to make a small profit in 2009. The International Air Transport Association (IATA) says “the only good news is North America. Un-hedged, they dramatically cut capacity as the fuel price peaked in June. Now they are taking full advantage of low fuel prices and may make a small profit.”