The Daily Flyer
Welcome to the fifth edition of “The Daily Flyer,” The Higher Flyer‘s daily newsletter gathering up and summarizing some of the day’s most important happenings in the world of airlines, hotels, award points, and other travel-related things. Today’s feature — for February 19, 2020 — explores how current trends in the U.S. airline industry (as named by Skift) affect passengers. Other topics include ways to make unbearable flights more bearable, whether or not metal credit cards are tacky, increased fallout from the coronavirus in the travel industry, and a new lounge on the way at Washington Dulles.
The Headline Feature
The airline industry in the United States has been performing remarkably. Not only has it been extremely profitable over the past few years, it’s reached levels of success that are unheard of literally everywhere else in the world. In the last quarter alone, the biggest U.S. carriers — Delta, American, United, Southwest, Alaska, JetBlue, Hawaiian, Spirit, and Allegiant — have collectively enjoyed nearly $46 billion in revenue. This growth comes after, between these nine competitors, they amassed total revenues of $184 billion and $175 billion in 2019 and 2018 respectively. Furthermore, their operating margins have been in the double digits. Given that airlines traditionally operate on really tight budgets, these statistics are all the more amazing.
So, what gives? Skift recently did a deep dive to find out, examining what drives such trends for the U.S. carriers and what they could all mean for the future. Its researchers drew 12 conclusions and explained them, but they didn’t explicitly consider what these mean for travelers. Fear not though, because The Higher Flyer is here to do just that in an easily digestible format AND discuss the winners and losers and the greater implications stemming each of these 12. For the sake of this, this article will be published over the course of two days; below is part 1. Click here to read part 2.
1. There’s a strong economy
- What this means for airlines: Because the United States’s economy is going through a period of unprecedented growth, everyone stands to benefit in some way or another. Duh.
- What this means for passengers: When the economy is good — like it is now — people, on average, have more money in the bank than they would otherwise. With more disposable income available to them, average people can afford to travel more than they do otherwise.
2. There’s less capacity than before
- For airlines: The 737 MAX debacle has been an unmitigated disaster for Boeing and its customers — let’s not get that confused — but there’s a silver lining for some airlines: the supply of seats has gone down. Because demand is going up (in part thanks to the strong economy), Econ 101 dictates that prices go up too.
- For passengers: For emphasis, the ongoing 737 MAX grounding is bad for everyone. Customers are hit particularly hard because not only are they more limited in their travel options — airlines are forced to operate fewer flights — but they’re also on the hook for subsidizing the decrease in supply.
3. Fuel prices are dropping
- For airlines: As per Skift, airlines in 2020 are paying eight percent less than they did in 2019 for fuel. Right now, they don’t have to devote as much of their budgets to kerosene, so they have more financial flexibility than ordinary.
- For passengers: Since airlines can more easily afford fuel for their fleets, they can in turn reduce the rates they charge for fares. They don’t have to levy as significant fees on their customers as they did before, which in turn results in savings for these customers.
4. Labor is getting more expensive
- For airlines: Wage and salary spending is increasing at not-insignificant rates for domestic airlines (at around 7 percent annually). In 2020, this trend is certain to continue. There’s an ongoing, nationwide shortage of pilots, and those currently in the industry (and specifically those working for Alaska, American, Delta, Southwest, and United) are going to want more compensation for their services. Likewise for AA’s mechanics and Hawaiian’s flight attendants. The cycle never ends…
- For passengers: As airlines pay more and more for their pilots, crews, and staffs, the added labor costs will inevitably be passed on to consumers. At least, maybe, better salaries and benefits will translate to better service on board…? Let’s hope, but also, let’s not hold our breaths.
5. Airport costs are rising
- For airlines: Airport operating costs are getting pricier — landing fees have nowhere to go but up — but fortunately, this trend doesn’t significantly impact a corporations ‘s bottom line; no one’s going out of business over this. While the airline’s do have to budget for greater expenses, they’re not impositions in the same way that labor contracts and fuel costs are.
- For passengers: Travelers are huge beneficiaries of this. While it might cost an airline more to operate a flight, customers don’t usually see that reflected in the fares they buy (the same can’t be written for fuel and labor costs though). Passengers will definitely notice the effects of the investments when they pass through recently renovated, if not entirely new, terminals. Per Skift, the top-50 airports in the United States have collectively invested $35 billion in infrastructure spending, which will definitely result in improved experiences for their customers.
6. Airlines are getting good returns on aircraft investments
- For airlines: As airlines take delivery of new aircraft, they’re able to dramatically improve their efficiency standards. Not only are carriers saving lots on kerosene (because the planes feature impressive fuel economies), but they’re cramming more passengers than ever in to them. So, they’re saving more AND making more; how profitable!
- For passengers: This is perhaps one of the most controversial AND perpetual issues in the airline industry. What’s good for airlines is frequently at odds with the average passenger. Indeed, seats are shrinking and are getting closer together — flying is becoming downright painful for many — but the flip side to this trend is that airfares are the cheapest they’ve ever been (when adjusted for inflation).
Furthermore, this progress brings positive developments too for the privileged. There’s never been a better time to travel in a premium cabin thanks to the innovations that airlines have been introducing with their new planes.
Stay tuned for Part 2 on February 24, 2020!
Article synthesized from “What 2019 Taught Us About the U.S. Airline Industry,” which was first published on Skift. Check it out for more detailed — albeit airline-centric — analysis.
Other developments, discussions, and articles in higher flying
1. Things you can do to survive economy class redeyes
Gilbert Ott, the primary author of God Save The Points, recently published an article that’s both useful AND humorous: “How To Survive Overnight Flights in Economy…” The essay is thematically similar to a previous post on The Higher Flyer, “Top 10: Ways to survive long-haul economy class,” but the two don’t overlap completely. He offers up some important suggestions; according to him, you should consider…
- Paying extra to purchase a seat with extra legroom, whether that be in economy plus (and not premium economy), in an exit row, or a bulkhead.
- Eating before you fly and, in that same vein, skipping airplane food AND the alcohol cart. Be sure to hydrate instead, but not too extremely!
- Coming prepared with “major” things like noise cancelling headphones and also “minor” things like writing utensils.
…among other things!
The full post is entertaining and worth a read, even if it doesn’t propose anything radical; you can do that by clicking here. Come for the tips, stay for the excellently amusing writing that only Gilbert Ott can provide!
2. Is your metal credit card just a gimmick?
This post masquerades as a hot take on the surface, but a read of it reveals a well-argued and thoughtful op-ed. The thesis revolves around the notion that yes, your American Express Platinum credit card looks and feels — quite literally sometimes — sharp.
That’s all well and good, but the physical feel of a card doesn’t fundamentally alter the experience of purchasing something on credit. A plastic card, or hell, even plain old cash, will yield the same result for you the consumer. Author Ashish Namjoshi, writing under the pseudonym “The Points Pundit,” goes even further here and suggests that calling a metal card gimmicky is a rather charitable assessment. More sinisterly, metallic credit cards simply exist as means for the issuing company to compel you to charge more to your account. You’d rather use something that’s premium, right? You want to feel good about your purchase, right? Surely being able to pull out a weighty metallic card to pay for it will make you feel like a high roller. That’s a nice sensation, isn’t it? Doesn’t it makes you want to spend more and more and more?
Don’t fall in to that trap! But feel free to form your own opinion after you read the article 😉
Sourced from “The Counterpoint,” a recurring feature written by Ashish Namjoshi on Travel Update.
3. Singapore Airlines is cutting flights across its network
The coronavirus outbreak is continued to be felt by many far beyond central China. In the week since The Higher Flyer highlighted some of these consequences in “The Daily Flyer,” more and more companies are beginning to feel the squeeze. Singapore Airlines today announced that it’s cancelling 674 flights starting in March and continuing through May because of the epidemic; the demand to operate these routes just isn’t there right now. Tokyo, as a result, will be losing 82 total flights during this span; and Seoul, 78; Taipei, 56; and London, 44, to cite a few prominent examples. This culling affects the carrier’s entire network, spanning from East Asia to the Western United States and most everything in between. Fortunately, Singapore will help you rebook your flights if you’re affected by this and, if need be, refund you for your troubles.
4. A new, Capital One-branded lounge will open at Dulles
Capital One announced in a statement today — after news broke in the Washington Business Journal — that it would be building a lounge of its own at Dulles Airport (a la American Express and its renowned Centurion Lounges). There’s no timeline for an opening beyond “next year,” and the features of it are vague at this moment. A filing with the Washington Area Airport Authority touts premium dining and drinking offerings, plus various seating and work areas, a playroom for children, a gym/workout space, a spa and shower facility, and quite possibly, an outdoor terrace. That’s exciting to think about.
But what does this mean? Why is Capital One investing in such a project? Could it be signaling that a future, more-premium travel credit card is coming? If so, will this card compete with the American Express Platinum? In terms of known amenities, this hypothetical Capital One product matches up evenly with the AMEX Plat (because we know nothing about the former). We’ll see what the future brings though…
First reported on by the Washington Business Journal, which was then confirmed by Capital One itself. Further analysis from View From The Wing and speculation from One Mile At A Time.
Got any tips? Questions? Comments? Email anything and everything to Paul@TheHigherFlyer.org, or comment below! In the meantime, thanks for reading, fly higher, and see you tomorrow!
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