...And What It Means for Passenger Rail
April 1, 2006 -- U.S. airlines lost $10.8 billion in 2005 and are projected to lose another $5.4 billion this year. The last year the industry turned a profit was 2000. Since then, they've lost a total of more than $33 billion. And while some industry analysts are making rosy forecasts, others see trouble ahead. We see greater opportunity for intercity passenger rail.
Stall/spin accidents are among the most deadly of aircraft accidents. They occur when the wings lose lift, most often in a tight turning maneuver. If it happens at low altitude, it's almost impossible for the pilot to recover before spiraling into the ground.
Even in its best years, the airline industry doesn't cover its cost of capital. In 11 of the last 26 years, U.S. passenger and cargo airlines have failed to show a profit. That means that they were already flying at low altitude when they were hit by the combination of new low-cost carriers, 9/11 and high jet fuel costs. And just as some observers are hoping they'll pull out if it, along comes new trouble.
As The Wall Street Journal (subscription required), the Chicago Tribune and others have reported, new small jets will begin taking to the skies this year. At a cost of between $1 million and $2.5 million, and seating four to six including the pilot, these aircraft will be used by business owners, corporate executives and affluent leisure flyers: commercial airlines' most profitable customers. The FAA predicts that 5,000 of these "very light jets" or VLJs will begin flying in the next 10 years.
New air taxi services will charge on a per-mile basis and may be competitive with commercial airlines while offering the advantages of point-to-point flights, flexible schedules and fewer airport check-in and security hassles.
"Airlines have lost the loyalty of a good number of those customers," reports Joe Sharkey in The New York Times, referring to frequent business flyers. The perks they've enjoyed -- upgrades to first class and preferred coach seating -- have become less available, making their frequent flyer status less valuable.
Thousands of small jets flying small numbers of passengers around will also put a strain on airports and the air traffic control system, creating more delays for commercial airline passengers. According to The Wall Street Journal, "Thousands of new small jets about to hit U.S. skies will likely add hundreds of additional flights each day in big cities like Las Vegas, Chicago and Dallas, leading to airport congestion and flight delays...Light jets could push traffic at some of them up 25% from today's levels."
Ground Support Magazine, an industry journal, concurs: "As the plane size continues to shrink and passenger numbers rise, there will be more flights creating more workload, not only for the FAA but the entire industry." More delays will also increase airlines' costs.
Opportunity for Intercity Rail
To cope, airlines will continue to push fares higher while cutting services. Coupled with increased delays and the inevitable airport hassles, more and more travelers will seek an alternative to flying. Ridership on Amtrak has grown for three years in a row nationally, and corridors in California,Illinois and the Pacific Northwest are seeing record ridership.
Historically, market forces have helped Amtrak gain passengers. Ridership jumped during the 1973 Arab oil embargo and again when Middle East oil supplies were threatened by the Iranian revolution in 1979. Security concerns during the 1991 Gulf War and following 9/11 also led to a bump in passenger levels. Increasing fuel costs may be responsible for recent gains in train ridership on Amtrak and commuter rail lines.
Perennially underfunded, Amtrak has little capacity to expand and take advantage of the current market forces turning in its favor. The federal government, as Amtrak's shareholder, has a chance to seize this business opportunity by investing responsibly to repair and upgrade trains and infrastructure and to expand services.
Investing in intercity passenger rail will allow market forces to work, and it is likely they will work in Amtrak's favor. Better intercity rail will give Americans the choice they want for travel. The irresponsible alternative is to continue preferential funding for aviation while all of us cram into tiny seats and pray that the industry can pull itself out of a nosedive.
