Airlines’ Capacity Discipline Exacts Toll on Airports

AIN Air Transport Perspective » May 20, 2013
A new class of ultra-low-cost carriers such as Spirit Airlines is serving smaller airports where network carriers have scaled back. (Photo: Spirit Airlines)
May 20, 2013, 9:20 AM

U.S. airlines have managed to stay profitable during a period of recession and spiking fuel prices, but small- and medium-sized airports have paid the price in reduced domestic air service, according to a Massachusetts Institute of Technology (MIT) study.

The study, “Trends and Market Forces Shaping Small Community Air Service in the U.S.,” measures airline scheduling trends between 2007 and 2012, when airports saw a reduction in scheduled domestic flights due to the U.S. recession, volatile fuel prices and “capacity discipline” exercised by major carriers. To cope with the challenging economic conditions, airlines shifted their emphasis from capacity expansion and gaining market share to achieving higher yields and load factors. (In its annual forecast released in March, the Federal Aviation Administration reported a “big jump in full airplanes,” with system load factor increasing from 71.9 percent in 2000 to 82.6 percent last year.) Large airlines attempted to reduce their operating costs by eliminating redundant flights and rationalizing service at smaller hubs. They were able to improve their balance sheets; the flip side is that many airports saw reduced domestic service.

About 1.4 million yearly scheduled domestic flights were cut from the U.S. air transportation system from 2007 to 2012, according to the MIT study. During that time, the percentage of departures from large-hub airports rose from 55.8 percent of the total to 59.4 percent. Airlines demonstrated a “clear trend” of consolidating service at the nation’s largest airports. The 29 largest airports as measured by 2011 enplanements lost 8.8 percent of their yearly scheduled flights during the study period; smaller airports lost 21.3 percent.

Medium hub airports, defined by the FAA as airports that enplaned between 0.25 percent and 1 percent of the previous-year total U.S. enplanements, fared worse than other smaller airports, according to the study. Medium hubs saw domestic departures reduced by 26.2 percent, more than small hubs (down 18.2 percent) and non-hubs (down 15.4 percent).

“Today’s medium-hub airports include Oakland; Providence, Rhode Island; and Love Field in Dallas–airports that Southwest Airlines targeted in the early stages of its development to serve as alternative options for passengers wishing to avoid the crowded hubs of competing airlines,” the authors write. “In response, network carriers started to cut service to these airports in the face of stiff competition from Southwest on both frequency and price.”

Now Southwest, the nation’s largest low-cost carrier, is practicing the same kind of capacity discipline as the larger network carriers. Southwest cut 9.8 percent of its domestic departures during the six-year study period. “This has left some medium-hub airports in a precarious position–with both network carriers and Southwest cutting service, these ‘secondary airports’ are often no longer able to compete on service or price with larger, nearby hubs,” the study states.

 

Some of the smallest airports lost all of their commercial air service over the study period. But fewer than 24 airports that had network carrier service in 2007 no longer have that service, according to the authors. Smaller airports benefited from the arrival of a new class of “ultra-low-cost carriers” such as Allegiant Air and Spirit Airlines that swept in where other carriers no longer served, providing infrequent direct service to vacation destinations.

 

 

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