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Thursday, September 27, 2012

Report: Airline Industry Focused on Newer Business Models

The U.S. airline industry is still adjusting to a volatile 2008-2011 period with mergers, new passenger fees and a reduced number of scheduled flights, according to the aviation industry performance report released by Department of Transportation Inspector General Calvin L. Scovell III this week.

The report states in 2000, 10 major airlines accounted for 90 percent of total domestic passenger air traffic — and in 2012 that has been reduced to five, a number that could drop to four if US Airways and American Airlines choose to merge.

According to the report, airlines reduced the number of scheduled domestic flights by 14 percent between 2007 and 2012, which has lead to increased passenger loads and higher fares on regional flights.

High fuel prices and a slow economic recovery have greatly influenced the newer business models being introduced by airlines, according to the report. Fuel costs peaked at 40 percent of airline operating costs in 2008, a 30 percent increase from 2000 when fuel costs accounted for 10 percent of airline operating expenses.

To offset the skyrocketing cost of jet fuel, airlines are passing the cost along to passengers, mainly with baggage fees. In 2011, U.S. airlines collected a total of $2.7 billion in added revenue from higher baggage fees — and spent $31 billion on jet fuel.

“Ultimately, the trends presented in this report suggest that the changes in the number of airlines controlling the industry, fare increases, and capacity reductions that began in 2008 are not a brief phase, but rather are signs of a greater shift in the industry that will remain for years to come,” the inspector general said. 

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