GoghGoner wrote:Airlines fares have seen price deflation 2014-2017 that will be ending this year. Airline passenger rate has a negative relationship with prices and after declining for a few years is now back above the rate achieved in 2007. Airlines are very exposed to oil prices.
This is something that was very apparent from 2005-2013 during which period we had a lot of Airlines going bankrupt or being forced to merge to stay in business. The 2014-2017 period of moderating and lower fuel prices has been a great gift to the Airline industry, but as the glut fades how long until we start seeing air travel once again fall to lower levels driving more companies into bankruptcy or forced mergers?
In addition to the Airlines themselves the two biggest aircraft suppliers, Boeing and Airbus, were seriously discussing ending their largest passenger aircraft production lines because the airlines were finding it difficult or impossible to get full passenger cabins for the Boeing 747 and Airbus A-380 without large scale over booking. You can get away with a small amount of overbooking because life happens and people miss their flights which would leave empty seats. For an airline an empty passenger seat is a serious issue because all of the profit they make on a flight comes at a threshold passenger load. The higher the fuel price the greater the percentage of passengers on the aircraft necessary to turn a profit on a given flight. When fuel prices are in the ranges they were from 2009-2014 they need every seat full to have a profit margin on that flight, and they really need that to make up for flights where the plane needs to be in a different city a certain number of hours later but not enough passengers wish to travel from the origin city to the needed city in the allotted time slot. This forces the Airlines to 'dead head' an aircraft even if there are only a few passengers paying for the trip, or occasionally no passengers at all. This makes filling up the popular route flights extremely important to the overall airline profitability and hence the creation of overbooking. Well when you are talking about a 747 or A-380 and you overbook enough to make sure the plane leaves full instead of having one or two disgruntled passengers who couldn't get a seat you might have six or twelve, and the more you have the more likely you are to end up with an unpleasant backlash. At some point it is actually better for the Airline to fly two smaller aircraft a half hour apart to and from the same destination than it is to pack all of them into one jumbo jet. Sure there is more maintenance and a greater number of total cabin and flight crew but it is still more economic than nuisance lawsuits and bad press.
Boeing and Airbus have both been struggling to sell enough copies of their super jumbo passenger planes to turn a profit on those lines. Airbus especially invested billions in design of the A-380 and setting up the construction plant to assemble the aircraft and has never shown a profit on sales because they didn't come close to expectations for sales. The A-380 is just so big that many airports are not capable of handling its massive ground weight, nor do they have the double decked loading jetways to rapidly move the high passenger load on and off the aircraft. Airbus was expecting a massive sales commitment which would have forced the purchasing airlines to pressure the international airports around the world to upgrade their facilities to work with the mega jumbo A-380. This is basically the same problem Airbus management had with selling the Concorde in the 1970's, they designed the plane they expected the Airlines to want instead of working with the airlines to provide what they actually needed. If Airbus was not taxpayer supported making these kind of mistakes would have killed the company either or both times they made it.