Ticket Costs On Upward Slope; Airline Industry Consolidating

May 22--Passengers can expect higher prices and more limited options in the future as fuel costs go up and airlines continue basing profit margins on connectivity rather than increased passenger counts, an expert said Monday.

"Despite all your digging in the ground, the costs are going up, fuel costs are going up," said Mike Boyd, president of Boyd Group International.

Speaking at Midland International Airport's Aviation Summit, Boyd, who specializes in forecasting and strategy solutions, said Midland's booming economy and high load factors on most flights, has put Midland International Airport in a strong position. Midland generates nearly 1 million passengers annually and produces about $153 million in revenue between its airlines, he said.

Even though that is the case, however, Boyd said the industry in general is shifting, which will mean fewer non-stop flight offerings, less seats in the market and higher prices nationwide.

In the second half of this year, there will be 11 million fewer seats than there were at that time last year, he said.

Part of that is because airlines have consolidated and because it's no longer efficient to run small airplanes. he said.

In 1983, there were 21 large jet operators as well as more than two dozen independent regional air carriers, Boyd said. Now there are only about 10 airlines. Regional airlines have all but disappeared, he said.

"Airlines aren't companies anymore," he said. "They're conglomerates."

When operating a flight, it's typically not worthwhile to run a small carrier because of the fuel costs and increasing maintenance costs. Similarly, non-stop flights from some cities are simply no longer worth the cost even if the load factor is high, Boyd said.

Instead of increasing destinations, Boyd said airlines are focusing on their major hubs and generating revenue streams based on connectivity out of there.

For places like Abilene and San Angelo, he said, that means it's no longer feasible to offer non-stop flights to many places other than to Dallas-Fort Worth or Houston.

"People are going to drive longer distances to get to fewer airports," he said.

In Midland -- a larger airport that has a higher capacity for flights and passengers -- nonstops and connections still are feasible but those that have been lost, such as the direct flight to Austin, likely won't ever return.

Midland is set to lose its direct service to Albuquerque, N.M., (on Southwest Airlines) in the fall, and Boyd said that flight also isn't one locals should anticipate seeing again.

He said there is a chance that Midland's direct flight to Denver (on United Express) could offer more seats at some point. He also said Southwest could enhance its Midland service.

When looking at offerings at Midland International, Boyd said to remember Midland's airport is important not because of the places it can take residents, but because of the individuals it can bring in from other areas.

Having connections from Denver, Dallas and Houston, for example, allows a businessman from Beijing to reach Midland. Those travelers are generating economic activity when they arrive and also are typically taking multiple flights before going back to China, or their other final destination, he said.

"A lot of people forget the importance of this airport is bringing people in to town," he said.

Marv Esterly, director of airports, said they often receive questions about why flights are being lost and they wanted Boyd to provide some perspective on how Midland is impacted by the national aviation climate.

"You can see the uphill climb that we're against," he said.

Overall, Boyd said, passengers can expect to pay more for service in an industry that's not going to expand anytime soon. Of course, he added, airlines also can be unpredictable.

"They're like teenagers," he said. "You never know what they're going to do, you don't know why they're doing it."

Kathleen Petty can be reached at kpetty@mrt.com.

Copyright 2012 - Midland Reporter-Telegram, Texas

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