Jetrader - March/April 2013 - 17

The last year was better for North American
air transport than 2011, but not by much.
According to the International Air Transport
Association (IATA), the North American
market achieved 1.6 percent total passenger growth in 2012, compared to a 0.1
percent decrease the year before. “North
America stands out as a slowest growth
region,” commented IATA’s November 2012
Air Transport Market Analysis. In contrast,
the highest growth region was the Middle
East, with an increase of 12 percent.
Total freight growth was up by 1.7 percent, compared to a 0.5 percent decline in
2011. Again, this put North America at the
bottom of the regional pack. The Middle
East was on top with 16 percent growth.
“They’ve purged their ﬂeets of older,
less efﬁcient equipment, sized their ﬂeets
and their aircraft to secure better load
factors and thus more stable fares, and
have enthusiastically embraced new passenger fees for baggage and food, which
have done a lot to lift North American
carriers to proﬁtability,” said Mary Ellen
S. Jones, president of The Engine Alliance.
The result: “IATA is estimating that North
American carriers realized a collective $2.4
billion proﬁt in 2012, up from $1.7 billion
in 2011, and will further increase that to
$3.4 billion this year,” she said.
Going bankrupt, combined with mergers
and subsequent infrastructure rationalizations, has enabled the major U.S. airlines
to slash their debt servicing and operating
costs. “This has enabled network majors to
reduce headcount and ﬁnancial burdens and
become some of the most cost-efﬁcient
carriers in the world,” Jones said. “Delta’s
operating costs, for example, are nearly
10 percent lower than those of Skyteam
partner Air France, which is now embarked
on its own cost-cutting drive.”
North American carriers also owe much
of their ﬁnancial rebound to their business
class passengers and frequent ﬂyer loyalty
programs. “American recently stated that
70 percent of their revenue comes from 25
percent of their passengers,” said Gregory
May, president and CEO of Q Aviation
Management. Perks such as upgrades to
ﬁrst class and fast security line clearance
provide “powerful leverage to get passengers dedicated to one of the big network
carriers,” he said.
May also credits the airlines’ improved
ﬁnancial health to their yield management

North American Market Remains Strong Despite Region’s Challenges
Airlines for America President and Chief Operating Ofﬁcer Nicholas E. Calio provides his
thoughts on the state of the aviation industry in North America.
Q: Overall, how is the North American
air transport sector doing, based on the
activity you are seeing?
A: U.S. airlines are making real progress
and playing an integral role in connecting
people and goods across the country. Our
domestic airlines are enabling economic
growth and creating high-paying American
jobs.
While ﬂying remains a real bargain for
passengers—as adjusted for inﬂation, it
costs 14 percent less to ﬂy today than
it did in 2000—there are also signiﬁcant
improvements in customer service. U.S.
airlines are breaking records for on-time
arrivals and baggage arrivals—in fact, we
will soon report the best year ever for
operations as measured by key Department
of Transportation (DOT) service-quality
metrics. At the same time, we are in the
safest period in aviation history, which is
a credit to the shared commitment of the
airlines, their employees and the Federal
Aviation Administration (FAA).
Overall, our member airlines are doing
a great job of improving their position to
be both competitive and proﬁtable, while
investing in their product to improve the
customer travel experience. We are seeing
new interiors and new planes, new destinations and new service options, which is no
small achievement given the weak economy,
record price of fuel, and the burdensome
tax and regulatory climate in which the
industry operates.
Q: What factors are inﬂuencing the
market?
A: The unique regulatory and tax burden
placed on the airline industry continues
to have a signiﬁcant detrimental impact
on U.S. carriers and their ability to invest
more in product and services and provide
even better air service for passengers and
transporting cargo.
Of course, the economy is a very
big factor since the health of airlines is

intrinsically tied to the health of the economy. As we all know, when the economy is
weak, fewer people travel for both business
and leisure, fewer goods are bought and
shipped, and fewer planes are purchased.
Another factor inﬂuencing the market is
the price of fuel, which is the single largest cost for airlines and the most volatile.
Stabilizing energy prices would lessen that
economic unpredictability. We also need
to encourage investments in alternative
fuels. Jet fuel represents 35 percent of U.S.
carriers’ operating expenses. In 2011, U.S.
passenger and cargo airlines spent a record
$50 billion on fuel, up $11.7 billion from
2010, or an additional $32 million per day.
Q: What are the challenges that the
market is facing?
A: As far as the United States is concerned, airlines remain among the most
heavily regulated, de-regulated industries.
The federal tax and regulatory structure
airlines operate under fails to recognize
the airlines as a strategic national asset
that is critical to global competitiveness
for America. Instead, airlines are viewed
more as a cash generator. Aviation taxes
have tripled since 1972 and now consist of
17 separate taxes and fees that amount to
about 20 percent of the cost of a typical
$300 roundtrip domestic ticket. At the same
time, we also see growing competition from
international carriers from geographies that
view their airlines as national assets.
Action must be taken by Congress to
rationalize the tax and regulatory burden
on this industry and to mitigate volatile
fuel prices. Another industry-wide challenge we face is outdated and inadequate
infrastructure. Modernizing the air trafﬁc
control system, which dates back to the
‘50s, will leverage technology investments
already being made to reduce ﬂight delays,
missed connections and cancellations,
while also lowering fuel consumption and
related emissions.

tools. These are specialized software programs that airlines use to analyze and then
exploit consumer behavior to pack planes
and generate additional income. “The yield
management tools are fantastic, as far as

their pricing of tickets and maximizing the
total revenue out of each ﬂight,” he said.
Beyond making more money by charging for
baggage and implementing nonrefundable
fares—the latter drastically reducing costly
Jetrader 17

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Jetrader - March/April 2013

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