How Has Air Service Changed Over Time?
On a national basis, passenger demand for air service tracks changes in national economic output. As national gross domestic product (GDP) has increased, passenger demand has increased. The figure illustrates the long-term relationship between GDP and passenger enplanements. Both total passenger enplanements on all U.S. carriers and GDP are indexed to the base year of 2000. Passenger enplanements follow the trends in economic activity reflected in the GDP.
The U.S. economy has experienced two recessions since 2000, which negatively affected the demand for air travel. According to the National Bureau of Economic Research, the two recessions in the past 15 years occurred from March 2001 to November 2001 and from December 2007 to June 2009 (the Great Recession). The depth of the decline in passenger traffic in 2001–2002 also reflected passenger concerns about safety following the 9/11 attacks, along with adjustments to the new security screening procedures.
Changes in Passenger Enplanements and GDP (indexed to 2000)
Broad National Trends in Air Service and Economic Activity
This section provides an overview of the macro level changes in air service and economic activity within the United States since 2001. That timeframe can be divided into five distinct periods:
The year 2020 is excluded because air service and economic activity were adversely affected by the pandemic. For more information on this subject, read Understanding Disruptive Events: The COVID-19 Pandemic.
In response to financial pressures, the industry consolidated. Between 2001 and 2016, the number of major airlines dropped from 12 to five, with five major mergers after the Great Recession. The regional airline industry also consolidated. The number of certificated regional carriers dropped from 71 in 2007 to 66 in 2019. Over the same period, the average capacity of regional aircraft rose from 51 to 64. With only larger aircraft to operate, serving many smaller communities became financially unsustainable. According to the Regional Airline Association, over 150 communities have lost commercial air service since 1995. In 2000, the federal government provided subsidized service to 82 communities in the 48 contiguous states via the Essential Air Service (EAS). In 2020, that number was 108.
On the other hand, new airline business models have emerged that support air service in many markets. Largely catering to leisure travelers, ultra-low-cost carriers (ULCCs) spread operations throughout the country. Many of the airports and communities served had not previously had commercial air service.
In addition, some communities gained nonstop international service. Several of these communities were not sites of airline hub operations, nor were they major leisure destinations such as Orlando and Las Vegas. The market connectivity created by such flights added directly to these regions’ economies.
Changes in Passenger Traffic
The long-term U.S. trend has been one of increasing capacity and passenger traffic. The figure “Changes in U.S. Passenger Traffic Since 2000” shows the increase in revenue passenger enplanements, including passengers flying on frequent flier awards, from 677 million in 2000 to 931 million in 2019. There were two notable decreases: the first in 2001–2002, tied to a recession and the impacts of 9/11, and the second associated with the Great Recession and global financial crisis. Following the events of 9/11, it took 3 years for passenger traffic to recover to 2000 levels. The impact of the Great Recession was longer lasting. Traffic fell beginning in 2008 and did not surpass 2007 levels until 2015.
Changes in U.S. Passenger Traffic Since 2000
The figure “Changes in Capacity and Passenger Traffic” summarizes the changes in air traffic as the amount of seating capacity offered by airlines and purchased by passengers. Seat capacity is shown in terms of Available Seat Miles (ASMs), a measure of the number of seats available for purchase multiplied by the miles flown. Passenger demand is reflected in Revenue Passenger Miles (RPMs), a measure of the number of miles flown by paying passengers. The figure also reveals the downturns associated with 9/11 and the Great Recession. ASMs dropped 7 percent from 2000 to 2002 before recovering in 2004 and fell by 8 percent from 2007 to 2009 before recovering in 2014.
Changes in Capacity and Passenger Traffic
The narrowing gap between the lines for ASMs and RPMs hints at another notable industry trend. U.S. airlines more aggressively managed available capacity. Passenger demand recovered faster than available capacity. As a result, the “load factor” (a measure of the percentage of available seats filled with paying passengers) rose from 72 percent in 2000 to 84 percent in 2019. For passengers, this meant that aircraft were more crowded.
Changes in Airline Profitability
The two downturns crippled the airlines financially. For the 9-year period of 2000–2008, covering both downturns, U.S. airlines recorded a cumulative net operating loss of $1.4 billion. The airlines’ cumulative net income for the period of 2000–2008 was worse: a net loss of $5.3 billion. Desperate and determined to reverse that record, the airlines took drastic measures. Many were forced to declare bankruptcy. Between 2002 and 2005, 14 U.S. airlines declared bankruptcy, including United, US Airways, Continental, Delta, Hawaiian, Aloha, and Northwest. (American Airlines declared bankruptcy later, in 2011.) Many terminated their defined benefit pension plans, at great cost to organized labor and the U.S. government.
Airline Operating Profits/Losses, 2000–2019
Industry Consolidation
The financial hardships of airlines resulted in the bankruptcies of 49 U.S. passenger and cargo airlines between 2001 and 2013, 13 of which occurred in 2008. Most bankruptcies did not result in a carrier ceasing operations because the U.S. Bankruptcy Code allows companies to reorganize under Chapter 11. Reorganizations included, most notably, the mergers of America West Airlines, US Airways, and American Airlines; Delta Air Lines and Northwest Airlines; United Airlines and Continental Airlines; Southwest Airlines and AirTran Airways; and Alaska Air Group and Virgin America.
Airline Mergers Timeline
With each successive merger, airlines re-examined their networks and consolidated operations in more profitable hubs. As a result, the airlines closed hub operations at various locations, including St. Louis Lambert International (American), Pittsburgh International (US Airways), Cincinnati/Northern Kentucky International (Delta), Memphis International (Northwest), and Cleveland Hopkins International (United).
Changes in Fuel Costs Complicated Airline Management
The price of jet fuel rose dramatically between 2004 and 2008, then temporarily crashed, and returned to historically high levels by 2011. Wildly fluctuating fuel prices complicated airline management.
Jet Fuel Prices per Gallon, Jan. 2000–Dec. 2019
Because of rising prices, the amount that airlines spent on fuel tripled between 2000 and 2008, even as total consumption declined. As a percentage of total airline operating costs, the amount attributable to fuel costs rose to 35–40 percent in 2009 compared to 15 percent in 2001.
Airline Fuel Consumption and Costs, 2000–2019
Because the industry consumes about 18 billion gallons of fuel annually, every $0.01 increase in average costs raises the industry’s fuel bill by $180 million, and a $1.00 increase in fuel costs raises the industry’s fuel bill by $18 billion.
Era of Capacity Constraint
As airlines aggressively sought ways to more closely match capacity to demand, they reduced the number of smaller aircraft flown. Average aircraft size grew among both regional airlines and mainline carriers. For mainline carriers, the average capacity of aircraft used in domestic markets rose from 146 to 166 seats (14 percent). Among regional airlines, the average capacity of aircraft used in domestic operations rose from 40 seats in 2001 to 64 in 2019 (60 percent). With only larger aircraft available, it was increasingly challenging for airlines to profitably serve many smaller communities.
Average Capacity of Aircraft Used in Domestic Operations
Changes in Air Service in Smaller Communities
ACRP Report 142 highlights some of the changes in air service that have occurred in smaller communities since 2000. The airports of interest were FAA-defined small hubs and non-hubs. “FAA Hub Sizes and Largest Airport by Category, with 2019 Enplanements” highlights the vast differences in the scope of operations between airports of different hub classifications.
FAA Hub Sizes and Largest Airport by Category, with 2019 Enplanements
| Statutory Definition | Number of Airports (2019) | Criteria | Largest Airport | 2019 Enplanements |
|---|---|---|---|---|
| Large | 30 | Receives 1.0 percent or more of annual U.S. commercial enplanements | Hartsfield – Jackson Atlanta International | 53,505,795 |
| Medium | 32 | Receives 0.25 to 1.0 percent of annual U.S. commercial enplanements | Nashville International | 8,935,654 |
| Small | 74 | Receives 0.05 to 0.25 percent of annual U.S. commercial enplanements | Memphis International | 2,318,442 |
| Non-hub (primary) | 267 | Receives less than 0.05 percent but more than 10,000 of annual U.S. commercial enplanements | Trenton Mercer | 462,173 |
| Non-hub (primary) | 119 | Has scheduled passenger service and between 2,500 and 10,000 annual enplanements | Valdez Pioneer Field | 9,401 |
| Source: FAA | ||||
“Changes in Flights and Seats by Hub Size, 2001–2013” summarizes changes in the number of available seats and flights from 2001 through 2013 by hub size. In general, the percentage decrease in flights was greater than the percentage decrease in available seating capacity. Carriers tended to substitute larger aircraft making fewer flights for smaller aircraft making more flights. Communities that previously might have had four daily flights to a location using 30-seat aircraft would later be served by twice-daily flights using 50-seat regional jets.
One indicator of this change was the growth in the number of communities that relied upon the EAS program, which subsidizes flights to communities. From November 2000 to 2019, the number of airports in the 48 contiguous states that received EAS-subsidized flights rose from 82 to 108.
Changes in Flights and Seats by Hub Size, 2001–2013
| Hub Size | Percent Change in Available Seats | Percent Change in Flights |
|---|---|---|
| Large | -9 | -11 |
| Medium | -25 | -27 |
| Small | -11 | -21 |
| Non-hubs | -17 | -32 |
| Source: ACRP Report 142 | ||
Emergence of ULCC Operations
As the aviation market evolved, some airlines found a segment that proved to be robust and profitable. Labeled “low-cost carriers” (LCCs), these airlines were able to drive significant amounts of passenger traffic to their operations because their cost structures were fundamentally different and lower than the legacy network carriers (LNCs), which allowed LCCs to charge lower fares while remaining profitable. LCCs tended to use secondary airports around larger urban areas to take advantage of lower airport costs (and less crowded conditions) while being near large populations. Carriers like Southwest pioneered this business model.
Another distinct business model has also emerged. ULCCs are those airlines that achieve significantly lower unit costs than LCCs and generate a significant portion of operating revenue through the sale of unbundled, ancillary services.
While full-service carriers usually offer benefits and amenities such as a free carry-on bag, free checked bag, inflight entertainment, snacks, drinks, or meals, ULCCs offer none of these. The U.S. airlines recognized as ULCCs are Allegiant, Frontier, Spirit, and Sun Country.
These airlines—especially Allegiant and Frontier—often served small and more rural points with less-than-daily service. ULCCs have established a pattern of rapid market entry and exit. Research from the Massachusetts Institute of Technology shows that ULCCs are over three times more likely than LCCs to abandon a new market within 2 years. Of the markets that they entered from 2011 to 2013, ULCCs abandoned 26 percent within 1 to 2 years of their launch. By contrast, LCCs abandoned 8 percent.
ULCC market penetration expanded greatly during the study period.
Allegiant’s markets rose from 72 in 2008 to 126 in 2019. Many are small hubs or non-hubs. Five airports—Orlando Sanford International Airport (SFB), Harry Reid International Airport (LAS), Phoenix Mesa Gateway Airport (AZA), St. Pete-Clearwater International Airport (PIE), and Punta Gorda Airport (PGD)—accounted for nearly 40 percent of its passenger traffic, with service to a large number of small markets. For example, from St. Petersburg and Punta Gorda, Allegiant operates to Lehigh Valley International Airport (ABE) in Allentown, PA; MidAmerica St. Louis Airport (BLV) in Belleville, IL; Eastern Iowa Airport (CID) in Cedar Rapids, IA; Sioux Falls Regional Airport (FSD) in Sioux Falls, SD; Quad-City International Airport (MLI) in Moline, IL; and Cherry Capital Airport (TVC) in Traverse City, MI.
Frontier’s markets rose from 62 to 106 U.S. points of origin. Frontier’s strategy differs from Allegiant’s in part by its willingness to devote more resources to major large hubs.
Spirit was 22 in 2008 and increased to 52 in 2019. It also operates from large hubs and focuses on flights to Las Vegas and Florida (especially Orlando and Ft. Lauderdale, from which it provides connecting services to the Caribbean, Central America, and Mexico).
Sun Country was 27 in 2008 and increased to 42 in 2019. Based at Minneapolis-St. Paul International Airport, the airline focuses on flying to warm destinations in the south.
Markets Served by ULCCs, 2008 vs. 2019
New International Service
In addition, some communities gained nonstop international service. Several of those communities were not sites of airline hub operations nor major leisure destinations.
Both U.S. and international carriers began operations in selected markets. Raleigh-Durham International was among the first non-airline hubs to gain service to Europe when American Airlines began operations to London’s Heathrow Airport in 1994. In 2016, Delta began flying from Raleigh-Durham International to Paris. Similarly, Austin gained service to London in 2014 when British Airways began flights. Austin-Bergstrom International Airport also won service to Frankfurt on Lufthansa that started in 2019.
Some of these operations were made possible by new aircraft technology. Boeing’s 787 Dreamliner and Airbus’s A350 offered less capacity and had lower operating costs than older widebody aircraft. This allowed airlines like Japan Airlines and Norwegian to initiate nonstop flights to locations like San Diego and Oakland. British Airways also deployed a Boeing 787 in its service from London to Nashville that launched in 2018.
Changes in Air Cargo
“Changes in Cargo Tonnage Handled, 2004–2019” shows the change in the total tonnage of freight enplaned and deplaned at U.S. airports from 2004 to 2019. The figure highlights the drop in tonnage associated with the Great Recession and spike in fuel prices. Cargo tonnage did not recover to 2007 levels until 2017.
Changes in Cargo Tonnage Handled, 2004–2019
Understanding Disruptive Events: The COVID-19 Pandemic
The COVID-19 pandemic has resulted in the single largest downturn in global aviation activity since global aviation statistics started being reported following World War II. According to the International Air Transport Association (IATA), 2020 global aviation traffic declined by 66 percent compared to 2019. International traffic has been more negatively impacted by the pandemic, with many countries imposing travel restrictions and closing borders.
The pandemic has imposed several hardships on the industry. Airports and airlines have had to manage sudden, massive reductions in air passenger volumes and air services, along with the need in some cases to accommodate new air cargo demands. Government support has been delayed and/or piecemeal, and the industry has has to adjust to new regulations and passenger processes related to health screening and profiling (some temporary while more permanent protocols and infrastructure may come into place).
Recent evidence indicates that in most nations, economic recovery has been “L-shaped” (i.e., a very slow rebound from the initial recessionary influence of the pandemic) (see graph). Near-term GDP growth for any given country will rely on vaccination rates, backslides from emerging outbreaks (e.g., the Delta and Omicron variants), and government responses to stimulate economic activity. Over the longer term, global GDP growth rates may end up lower than pre-pandemic expectations, though it remains to be seen what kind of permanent or long-term influence the pandemic could have on economic activity.
Recovery of Passenger Screening at U.S. Airports: Jan. 2020–July 2021 (millions)
In July 2021, IATA reported that the recovery in traffic had been slower than had been expected and continued to disappoint, lagging far behind 2019 levels. Globally, international traffic in 2021 was down almost 81 percent compared to 2019. Total domestic demand was down 22 percent versus pre-crisis levels (June 2019). IATA’s Director General said, “That’s not a recovery; it’s a continuing crisis….” IATA projected total industry losses of $47.7 billion in 2021 but noted that compared to other world regions, North American airlines were suffering least, expecting losses of $5 billion.
Airlines for America (A4A), the trade association that represents many of the largest airlines in the United States, noted that a return to 2019 passenger levels depends a large part on business travel. The best case scenario suggests a return to 2019 levels in 2022, but the worst case suggests a return after 2024. A4A does not expect airline revenues to return to pre-pandemic levels until the second half of 2022, indicating continued financial strain on the industry and signaling likely continued changes to airline networks and operations.
The latest, broad consensus in the industry indicates that air traffic overall will recover to 2019 (pre-pandemic) levels by 2024. The trajectory of recovery may vary widely across regions, airports, and market segments, depending on several factors.
Domestic activity is recovering faster than international traffic in part because it is not subject to the same restrictions imposed by different governments. However, regional airports may fight to regain service to major hubs if airlines end up downsizing or revising their network strategies.
Some studies suggest that pent-up leisure travel and travel to visit friends and relatives will drive the initial return of air traffic, while business travel could be reduced by 20 to 40 percent on a permanent basis due to greater use of internet communications.
IATA forecasts that North American carriers are best placed to take advantage of the rapid vaccination boost to domestic travel, as well as the strong economy driving air cargo demand.
Continue reading: How Has Regional Economic Activity Changed Over Time?