Demand for air travel is softening, and that's threatening the still-embryonic financial recovery of the battered airline industry.
More worrisome is growing evidence that the slowdown began well before the Aug. 10 breakup of a terror plot that led to the current ban on liquids and gels in carry-on bags, says consultant Julius Maldutis of Aviation Dynamics.
A string of fare hikes since early 2005, coupled with airlines offering fewer and more crowded flights, have made flying not only more expensive, but also less enjoyable, Maldutis says. And higher energy costs are sapping more of consumers' and corporations' discretionary dollars, dampening travel demand.
The first hint that demand might be slowing came in March, when the number of passengers flying on scheduled U.S. flights was down compared with March 2005, ending a string of 41 months of year-over-year increases.
But that dip was largely dismissed as a calendar quirk: Easter, a big travel weekend, shifted to the second quarter this year from the first quarter in 2005. Also masking the slowing growth in demand was big year-over-year gains in monthly revenue as airlines raised fares and limited capacity growth.
There are other signs:
*The Bureau of Transportation Statistics reported Thursday that passenger boardings on U.S. carriers in the first six months of this year rose 0.9% from the same period last year, and just 0.1% in June. Boardings rose 7.3% in the first half of 2005 from 2004's first half.
*AirTran this week lowered its revenue estimates for the rest of this year. JetBlue, Southwest and US Airways have sent similar signals to the market.
*Continental, which is adding capacity faster than other big network airlines, says its advance bookings for fall have slowed.
*United ditched an August fare hike when rivals wouldn't match it.
*JetBlue, the fastest-growing carrier a couple of years ago, is deferring delivery of 12 new planes and selling five others because demand isn't as strong as anticipated.
*Southwest Airlines CEO Gary Kelly this summer said he was seeing the first traces of consumer pushback against higher prices in a handful of Southwest's markets.
But analyst Roger King at CreditSights notes that airlines are making money again after losing more than $40 billion in five years. "It's too early to be concerned." The airlines, which turned profitable as a group in the second quarter, might avoid being pushed back into the red; oil prices have been falling. Oil closed at $63.22 a barrel, down from a recent peak above $77.
