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FAA's Crystal Ball: Air traffic to Climb Through 2017
(Continued) “Collectively, we sell our product below cost; that’s our problem,” said William Ris, American’s senior vice president for government affairs. Soaring airline traffic The problem is not in attracting passengers, or at least it shouldn’t be. Collectively, U.S. airline traffic already soared past pre-9/11 levels in 2004 or 2005, depending on how the traffic is measured, and the FAA doesn’t see an end in sight to the increasing popularity of air travel. Airlines also are filling a record percentage of seats, and the FAA believes that load factor will inch up just a little bit more. But the FAA and the airlines believe the industry is nearing a saturation point on load factors, which means what the U.S. airline industry really needs is higher fares to offset its higher fuel costs. “It’s not anti-consumer to say fares have to come up a bit,” Ris asserted, “because the fact is if fares don’t come up, airlines are going to go out of business.” In that arena, however, the FAA forecast did not provide much optimism. The FAA 12-year forecast for domestic yield, the industry’s barometer for fares, is that it will increase 1.7% a year for mainline carriers in current-dollar terms, with a 3.7% spurt this year, but will decline 0.8% a year in inflation-adjusted dollars. The FAA said it based that forecast “on the assumption that increased competition from low-cost carriers will continue.” Many of the big, legacy airlines are shifting their capacity to more international routes, where they face less low-cost competition and can charge higher fares. But the FAA yield forecast for international travel isn’t any different: up 1.7% a year in current-dollar terms but down 0.8% a year in inflation-adjusted dollars. The FAA said the decline in real yields is based on the assumption that competition “will continue to exert pressures on carriers to hold the line on fare increases.” If the FAA is correct on its yield forecast, the airlines can only hope the FAA also is correct with its fuel price forecast, which assumes $54 a barrel oil in 2006, falling gradually to under $51 a barrel in 2010. Fuel forecasts The cost of oil was about $62 a barrel the day the FAA released its forecast. And the FAA forecast doesn’t separately consider the cost of jet fuel, although the cost of that refined product has increased even more than the cost of crude oil over the past few years. FAA forecasters said they use the Office of Management and Budget’s assumptions on oil prices. Higher prices cost U.S. carriers $9.6 billion in 2005, “essentially wiping out the significant improvements made by the legacy carriers in reducing their operating costs,” the FAA said. Consumers and airlines also are facing another concern: whether airports and the air traffic control system will be able to handle the projected increase in traffic without more air travel congestion and delays.
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