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Making A Choice - It works both ways

by MGT Media partner

26 SEP 2012:  Airline passengers can expect fewer carriers to choose from, fewer flights to smaller cities and more baggage and other fees as the industry continues to grapple with high fuel prices and a weak economy, according to a US government report released Tuesday. 

The airline industry is still in transition after a tumultuous decade in which bankruptcies and mergers cut the number of airlines accounting for the bulk of US domestic flights in half, to just five: American, Delta, Southwest, United and US Airways, the report by the Department of Transportation's inspector general said. If US Airways and American - which are in merger discussions - were to combine, that would drop to four. 

Things change There are dozens of other airlines in the US, but collectively those smaller carriers account for less than 15% of total passenger traffic. Twelve years ago, there were ten major US airlines accounting for 90% of domestic flights. But high fuel prices, the 2008 recession and a slow economic recovery have taken a toll.  In 2000, fuel costs were just 10% of airline operating expenses. Fuel costs peaked at 40% of expenses in 2008, outdistancing payroll as the airlines' biggest expense. Last year, fuel accounted for 35% of expenses.  Less competition has enabled airlines to try to offset higher costs by eliminating less profitable flights to smaller cities, the report said.

  Increasing fares Airlines cut the number of scheduled domestic flights by 14% between June 2007 and June 2012, and as a result, flights have fewer empty seats and airlines have been able to increase fares, especially on short-haul flights.  Last year, the industry attempted 22 fare increases, of which 11 were successful. Airfare increases are considered successful if competitors also adopt an increase. If there's not widespread matching by other airlines, the result is usually a withdrawal of the original increase. So far this year airlines have attempted eight fare increases, four of which have been successful.  Since 2008, airlines have also supplemented their fares by charging a wide range of fees for services that in most cases used to be free. Baggage fees alone contributed $2.7 billion in added revenue to airlines last year...

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