What's Fueling the Air Travel Industry?

Since less than a decade ago in the years 1999-2000, the U.S. airline industry recorded losses to register a total of $35 Billion in a span of 5 years. The years 2006-2007 sent fresh signs of recovery to the industry when earnings started to be realized. The year 2008 has also been a recovery year. With the recent downward correction of oil prices, a negative correlation between oil prices and the price of airline stocks can be established. Oil prices, which have been in constant upsurge since earlier years, experienced a technical correction this week, and without separating business from its stock, these airline companies' stocks rose. The fall of oil prices early this week and a Wall Street Journal report on merger talks by Delta Air Lines Inc. (DAL) with Northwest Airlines Corp. (NWA) and United Airlines parent UAL Corporation (UAUA) caused UAUA stock's prices to surge last Tuesday, leveling off at present.

The airline industry's high fixed costs, cyclical demand and intense competition among the industry players locally and internationally have triggered this sector to capitalize on strategies, critical investments planning, redeploying assets and optimizing aircraft utilization.

Mergers are also seen as a way of stabilizing the volatile and fragmented industry by allowing carriers to cut costs, reduce capacity and raise fares.

Industry experts however, stressed that for a deal to succeed, the carriers would have to win over the industry's powerful unions, which are seeking to claw back some of the concessions made during the industry's five-year slump, which ended in 2006.

As stated by Greg Davidowitch, president of the Association of Flight Attendants at United, "We will not tolerate any transaction that serves to delay, disrupt or impede our efforts to improve compensation and working conditions," a sentiment that was echoed by the pilots union at United.

"CEO Glenn Tilton and other executives must understand that any merger or consolidation involving United Airlines will not be consummated without the involvement of its pilots," Steve Wallach, chairman of the Air Line Pilots Association at United, said in a statement.

According to the Transportation Department, U.S. airlines employed more workers in November than they did a year ago, the 10th straight month of gains. And a data from the Bureau of Transportation Statistics revealed that U.S. passenger airlines employed 3.7 percent more workers in November compared with the same month a year earlier, the largest year-over-year increase since August 2001. The 419,444 full-time workers employed by the industry also were the most in any month since July 2005. Employment and staffing management then is significant in the industry.

The factors considered then as fueling airlines are lower oil prices, optimized capacity utilization, strategic merger and acquisition schemes, capital budgeting and staffing management, among all other options to ensure competitive position in the industry and overcome the pressure on operational bottlenecks in the U.S. air travel system. In all options however, airline workers play a significant role.

Comments

[Tom Lutzenberger]

There's a data issue here. The Air Transport Association (ATA) says the number of full time equivalents in 2006 was 544,540. If your DOT number of 2007 says 419,444, then that would be a significant decrease YoY, not an increase, especially since July 2005. Which data source is correct?