Airlines Face Growing Pains

The high load factors result from rising demand for travel at a time when the supply of airline seats has declined.


Occasional long lines at airports and crowded planes are causing glitches as the heavy summer travel season takes off, but the airline industry is viewing this year's problems as manageable.

Loads, or occupancy levels, of about 81% are only slightly ahead of the past two years, said US Airways (LCC:NYSE) Chief Executive Doug Parker, in an interview. "With higher load factors, service disruptions are harder to accommodate," Parker says. "That just makes it more important to run a good airline."

Clearly, this is not the summer of 2000, which marked the low point in the aviation system's ability to handle its passengers. Six years ago, timeliness was a problem because of a series of summer storms, the federal government's decision to allow more flights at New York's already congested LaGuardia Airport and pilots at UAL's (UAUA:Nasdaq) United Airlines, then the world's largest carrier, refusing to fly overtime.

That June, only 66% of flights arrived on time. For the full year, only 72.6% met their scheduled arrival time, according to the Bureau of Transportation Statistics. By contrast, 77% of flights were on time in 2005, and the pace was about the same through April of this year.

The average airplane had 80.7% of its seats filled in May, according to the Air Transport Association. The average load last year was 77.6%, the highest annual average since World War II. Loads have been climbing steadily since the 1980s, when they never exceeded 63%. Even in the 1990s, they never exceeded 71%.

"It isn't ideal from a traveler's point of view, but I don't see any problem running through a summer peak with loads in the mid-80s," says consultant Dan Kasper of LECG in Cambridge, Mass. "Airlines have done a pretty decent job of adapting to high load factors."

Still, when any disruption, such as weather, a mechanical failure, airport lines or a computer malfunction, causes a delay, it's harder for airlines to reaccommodate passengers, Kasper says. Although there is no indication that the number of such incidents has increased, several have drawn attention in recent weeks.

The high load factors result from rising demand for travel at a time when the supply of airline seats has declined. Domestic capacity is down about 4% from a year ago, the ATA says, largely as a result of reductions in fleet sizes by carriers operating under bankruptcy protection.

Meanwhile, demand for travel has been rising, enabling carriers to raise ticket prices in an effort to pass on the impact of fuel price increases. Through April, ticket prices were up 13%.

Parker says the industry revenue environment is strong "because there is less capacity in the system, which some are confusing with good management."

"You get concerned that people think they are doing better than they really are," he said. "Some people are even talking about aircraft orders." Continental Airlines (CAL:NYSE) said this month that it will order 34 new Boeing aircraft, with the first plane arriving in 2008.

In the meantime, Kasper says, passengers have demonstrated that they're willing to endure crowded planes if ticket prices remain low enough. "The market has spoken," he says. "People want low fares, rather than planes that are only 60% full."

Miller says planes will continue to be full into the foreseeable future because airlines have improved their ability to identify which passengers will show up. Passengers should be aware of airport conditions, he says, arriving early when necessary and, if possible, avoiding flights at crowded times, such as Monday morning and Friday night.



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