1969-02-01

Long Term Trends in Airlines Economics 690414

Air transportation by any measure is big business today, and will more than triple in size by 1980. Most of the recent growth has been under the impetus of the jet age. With greater speed and comfort available, people used air transport more and more frequently. SRI's long-range estimate is that world passenger traffic (scheduled) will exceed 900 billion passenger miles in 1980, up from 17.5 billion in 1950, 67.7 billion in 1960, and 250 billion (estimated) in 1970. Air cargo traffic is following a similar growth curve. To carry this traffic, the airlines will have to expand their investment base, mainly in a highly competitive capital market. But bigness doesn't necessarily mean efficiency or profitability. From an economics point of view, the airline industry's growth has also created some bad habits. Because reequipment cycles are geared to technological change, not to traffic service requirements, there has been a poor match between capacity growth and traffic support. This has had a disasterous impact on earnings, somewhat saved by lower break-even load factors and longer stage lengths, particularly in the last few years. However, if airline earnings continue to show a fluctuating pattern in the face of traffic and investment expansions ahead-disenchantment of equity capital investors and the lending public will make it difficult to secure the needed funds. Better management tools for cost control and operations monitoring, simulation of operations before actual purchase, computer use wherever possible, and development of software to tap growing data bases for management information are suggested as improvements needed to counter this pattern. With rising pressures on equipment and supply costs, and limited technology-based cost reductions in prospect, cost control offers the only hopes for economic stability and sound future development of air transportation.

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