The Daily Flyer
Welcome to the sixth edition of “The Daily Flyer,” The Higher Flyer‘s daily newsletter gathering up and summarizing some of the day’s most important happenings in the world of airlines, hotels, award points, and other travel-related things. Today’s feature — for March 5, 2020 — builds on the most recent’s, as it further describes how current trends in the U.S. airline industry (as named by Skift) affect passengers. Other topics include Ellen on the seat recline debate, more remarkable news about the effects the coronavirus outbreak is having on the travel industry, and a fun challenge for you bargain hunters out there.
The Headline Feature
Before picking up from the last “Daily Flyer,” it’s important to (briefly) remember why we’re in this position to begin with: the airline industry in the United States has been operating at unprecedented levels of profitability. The biggest U.S. carriers — Delta, American, United, Southwest, Alaska, JetBlue, Hawaiian, Spirit, and Allegiant — have collectively enjoyed nearly $46 billion in revenue in the last quarter alone, and that comes on top of revenues of $184 billion in 2019 and $175 billion in 2018. Their operating margins have all been in the double digits too; these developments stand in stark contrast to everywhere else in the world, where airlines traditionally scrape by with much thinner profits.
Skift and its researchers recently studied and analyzed why the U.S. airline industry has been so healthy over the past few years, and they drew 12 conclusions from their findings. While their essay, which can be read here, is interesting and insightful, there’s no analysis of what effects these trends will have on travelers. Fear not though, because The Higher Flyer is here to do just that in an easily digestible format AND discuss the winners and losers and the implications stemming each of these 12. For the sake of this, this article will be published over the course of two days; below is part 2. Click here to read part 1. So, without further ado…
7. The international market yielded mixed results
- For airlines: Airlines based in the United States are enjoying great returns on their domestic flights, but the same can’t exactly be written for their international ones. They’ve had trouble breaking in to parts of the Asian market — the coronavirus outbreak is the latest hurdle — and have had to cancel a number of routes to China due to a lack of profitability (although there’s a lot going that warrants consideration in a longer blog post). The transatlantic and Latin American sectors on the other hand have been quite favorable to U.S. carriers, in part thanks to their foreign competitors scaling back and/or ceasing operations.
- For passengers: The global trend in the industry ultimately amounts to a loss of competition, and this is undoubtedly bad for consumers. It doesn’t matter if U.S. carriers are struggling and have to cancel routes to Asia, because such developments allow their state-owned Chinese counterparts to move in to dominate the market(s). Meanwhile, the struggles of European and Latin American airlines merely helps American, Delta, and United move closer to monopolizing any given route. The end result is more expensive airfares, which is great for corporate profitability.
8. Airlines have lots of revenue generators available to them
- For airlines: The formation of joint-ventures are exciting new developments for airlines — and they unfortunately result in more-monopolized routes — but the new frontier is represented by the application of big data to the industry. Airlines will be able to better market themselves to potential customers and, in turn, earn more than they otherwise would with a broader approach to selling airfares.
- For passengers: There are two ways that you can look at this claim. One is that if you’re enjoying the regularly available cheap fares, you’re in luck because the carriers selling them have lots of “tools” to help keep costs low and affordable. The flip side to this is that if you think you’re being nickled and dimed now, just you wait! Big data will open so many opportunities for the travel industry to extract every last cent out of its customers. Maybe this will be a net positive for you, but it’s easy to see why some might not feel that way.
9. New markets are resurging and emerging
- For airlines: San Juan, Puerto Rico, as Skift writes, “heads a list of hot markets,” as there’s a strong demand for both domestic and regional international travel. Pair that with equally impressive growth out of Austin, Dallas, Denver, Nashville, and southwest Florida, and airlines have more than a few opportunities to grow and expand within and beyond these geographic areas.
- For passengers: Demand in these markets is skyrocketing, but because airlines are eager to get pieces of these pies, there’s an influx of seat supply to cater to these (new) travelers. Airfare prices accordingly have been low. So, if you live in the United States’s southeast and have a desire to see Puerto Rico, now is the time. Obviously trends will change, but for now, residents will benefit from a number of airlines competing for butts-in-their-seats; be on the look out for deals!
10. There’s less capacity at several airports
- For airlines: This is the opposite of the last point (“New markets are resurging and emerging”) and it’s neither good nor bad news for airlines. They’re simply reallocating the resources available to them in response to changing landscapes. Instead of servicing, say, Orange County, California, and Kansas City, Missouri, carriers are now refocusing on San Juan and the other airports previously mentioned. You could make the argument that carriers benefit from reducing supply, but those gains are offset by the lower demand in the “new” destinations.
- For passengers: If you live in any of the “declining” cities, understandably this is bad news for you; you have fewer flights available to you now than you used to a year ago. While this is a net neutral for airlines — the losses in demand in one place are made up elsewhere in the network, after all — but this is a negative for customers and their wallets. The lower supplies make for higher fares, which is another downer on top of a decline in selection.
11. Competition for market share is increasing
- For airlines: As is to be expected with airline service ebbing and flowing in various regions, competition for butts-in-seats is heating up. There are a few potential “flashpoints” emerging now in both the domestic and international arenas. A number of U.S. carriers are seeking increased market share in Hawaii, for instance, just as many of the same are also competing for (the aforementioned) San Juan, Puerto Rico. There’s bound to be a fight in Tokyo in Summer 2020, as the Big 3 relocate their service from Narita to Haneda, and the same goes for who emerges victorious from the ongoing reshuffling in Latin America (with Delta partnering with LATAM, AA partnering with Gol, and United organizing joint-ventures with Copa and Avianca). Initially, this spells doom for the bottom lines of the airlines, but there’s great potential for growth in the long-run. We’ll see what happens.
- For passengers: All of this jostling between the U.S. carriers means there’s a lot more competition than ever before. There are going to be lots of opportunities for higher flyers to enjoy fabulous values as the airlines try to outdo one another and fill their planes. Likewise, Breeze will be entering the market in 2020 — which is founded by the man behind JetBlue — and will offer potential travelers even more compelling choices. Look for new expansions too, like American Airlines naming Seattle as a focus city (to join up with Alaska and compete against Delta) and JetBlue offering service to London, among other things. These are exciting times to say the least!
12. Flight shaming is developing in to a phenomenon
- For airlines: Traveling by air isn’t exactly great for the environment, and airlines are each responsible for massive carbon footprints. Such is the nature of aircraft; they require a lot of resources to get and stay off the ground. Elsewhere in the world, primarily in Europe, customers are opting for more eco-friendly means of transportation and some carriers are struggling to adapt. Known as the “Greta Effect,” which is named for a famous young activist who eschews air travel, everyday people are hopping on trains, boats, and buses instead of planes. This trend isn’t as prevalent in the United States right now, but one day it could be. Such a development would force airlines to change their business models, and failure to do so could spell doom. We’ll see…
- For passengers: It’s hard to tell what flight shaming means for passengers, as it’s simply too soon to accurately assess the effects of it. But that’s neither here nor there; protecting the planet is always a win!
BONUS! All this taken collectively…
- For airlines AND passengers: This is a doctoral thesis waiting to happen! In the meantime, stay tuned for future posts/Daily Flyer articles that will explore these topics in greater depth. Generally speaking though, you can count on one thing: when airlines act in their interests, it will almost always be counter to those of the majority of their customers. That’s how it’s always been, and that’s how it will always be. This article, when paired with Skift‘s, reflects this, because even now when times are excellent for the corporations, the people are getting the short ends of the stick. That’s a cynical perspective for me to have, sure, but thank goodness there are ways for travelers to advocate for themselves; #FlyHigher!
Part 1 of this article can be accessed here. Both articles synthesized from “What 2019 Taught Us About the U.S. Airline Industry,” which was first published on Skift. Check that out for more detailed — albeit airline-centric — analysis.
Other developments, discussions, and articles in higher flying
1. Ellen: “Recline to one another!”
The recent viral video of a disgruntled passenger repeatedly shoving the back of a reclining passenger’s chair — that was even covered here on this site — has grown from the debate du jour in the higher flyer community and in to a full-blown celebrity cause. Ellen, of her eponymous Ellen DeGeneres Show, joined the conversation, dedicating a section of her opening monologue to the topic. You can see for yourself below, but to summarize: you oughta “recline to one another!” (That’s a play on her “Be kind to one another” sign-off.)
Sourced directly from Ellen and accessed via YouTube. LALF for further reference.
2. China’s aviation market is shrinking to previously unthinkable levels because of coronavirus
The coronavirus outbreak is growing in to a full-fledged pandemic as diagnosed cases near the six-figure mark. It’s no secret that COVID-19 has been disruptive economically, and the effects of such are being felt far beyond the scope of the international medical emergency. One ramification is that travel is down worldwide and, according to a report by OAG, China’s aviation market is now smaller than Portugal’s. For a country that was once ranked third behind the United States and the United Kingdom, this is stunning but unsurprising. Millions of seats have been cut from airlines’ capacities due to a lack of a demand, and once-major players like China Southern and China Eastern are now operating footprints comparable to those of regional carriers Air Astana and Tunis Air (as noted by Live and Let’s Fly). For countries that depend on Chinese tourists and their money, this reflects something potentially devastating.
Sourced from a report published by OAG.
3. The great “Escape” challenge
On a note more fun than the coronavirus: if you’re good at finding cheap flights, I have just the competition for you. Online travel agency Escape is offering cash prizes to those who can formulate the cheapest itineraries that have stops on every inhabited continent (so no, you don’t need to find a way to get down to Antarctica. Thank God!). You have until March 15th to submit an entry, and the grand prize winner gets $10,000 to make this dream trip a reality. Good luck!
Got any tips? Questions? Comments? Email anything and everything to Paul@TheHigherFlyer.org, or comment below! In the meantime, thanks for reading, fly higher, and see you tomorrow!
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