Aviation in Focus

Aviation in Focus

In 2000, air travel between the United States and foreign countries reached record levels. Between 1990 and 2000, the total number of nonstop passenger trips made by air between the United States and foreign countries increased by 69 percent from 85 million to 144 million (table 11). During this period, international enplanements19 on U.S. air carriers rose by 29 percent (USDOT BTS 1999; USDOT BTS OAI 2002). Not only did more passengers board international flights on U.S. carriers toward the end of the decade, but they also tended to journey to more distant destinations. International revenue passenger-miles20 flown on U.S. carriers also increased from 124 billion in 1990 to 190 billion in 2000, a 52 percent increase in total distance, outpacing the growth in the number of enplanements (USDOT BTS OAI 2001a).

Such strong growth in international air travel was already beginning to slow in early 2001, and a downturn ensued following September 11, 2001. International revenue-passenger miles on U.S. carriers fell by 29 percent in September 2001 and 37 percent in October 2001, when compared with September and October 2000. International enplanements also declined by similar amounts-27 and 32 percent less compared with the same months in 2000.

These large declines in revenue-passenger miles and enplanements reflect the drop in departures and load factors21 that followed the September 2001 terrorist attacks. After increasing during the first half of 2001, international departures by U.S. carriers decreased by 18 percent in September 2001 and 10 percent in October 2001 when compared with 2000 levels. Such declines were due to the closure of all the major gateway airports for several days and the reduction in airline service and schedules once they were reopened. In addition to the reduced international departures, international load factors dropped. U.S. commercial air carriers filled only 57 percent of their available international seat-miles22 in October 2001 compared with 75 percent in October 2000.

Factors of Growth

Several factors contributed to the tremendous growth in U.S. international air travel that occurred through 2000 including: aviation industry deregulation and privatization, global alliance formation among air carriers, strong economic growth, and increasing trade during the 1990s.

Changes in global aviation began in 1970s when U.S. airlines were deregulated.23 At the same time, the international system remained tightly regulated, with many international carriers under the control of national governments. In such an environment, flying between countries was governed by bilateral agreements that were often restrictive on a number of levels, including the destinations served, the airlines and services available, and the prices charged. While the basic framework of bilateral agreements remains in place, in recent years, the U.S. government has advocated "Open Skies" agreements that are aimed at increasing competition, lowering fares, and improving service.

The United States signed the first Open Skies agreement with the Netherlands in 1992, and more recently, signed an agreement with France in January 2002. Open Skies agreements permit unrestricted international air service between participating countries, allowing each country's airlines to fly between any city in its home country and any city in participating countries. In total, the United States is a signatory to 56 Open Skies agreements that are designed to afford carriers improved operating flexibility and service expansion. The agreements also facilitate the scheduling of connecting flights, greater capacity in specific gate-to-gate markets, and potentially lower prices due to increased flight options. A U.S. Department of Transportation (USDOT) study of the effect of airline deregulation on the U.S. transatlantic market found that average airfares from the United States to Open Skies markets fell more steeply than did ticket prices to non-Open Skies countries (USDOT OST 2000, p. 2). The decline was even greater for Open Skies fares to connecting markets beyond European gateways, such as those in Asia, Africa, and the Middle East.

While the U.S. government has advocated a liberalization of the international aviation industry for the past several decades, U.S. and international air carriers have entered into global business alliances as part of their strategies to compete in the global market. These alliances have allowed carriers to overcome national ownership rules and restrictions on travel routes. These arrangements between air carriers often include route access and marketing provisions such as code-sharing24 and joint frequent-flier miles programs. They have also extended to more intense cooperation and business integration in the form of shared facilities and aircraft, as well as maintenance agreements.

Carrier alliances also have increased service and scheduling options for both small and large markets. USDOT examined global aviation alliances and found a marked increase in service to and from smaller markets and decreased fares on routes that included alliance gateways (USDOT OST 2000, p. 8). The report found that the number of markets and city-pairs served by alliances has increased greatly, offering more choices and travel flexibility for customers. For example, the Northwest/KLM alliance served 7,300 city-pairs worldwide in the third quarter of 1999 as compared with 1,400 city-pairs in the third quarter of 1992. The United/Lufthansa alliance increased the number of city-pairs served from roughly 1,700 in the third quarter of 1992 to nearly 3,900 in the third quarter of 1999.

In a regional context, passenger traffic between the United States alliance gateways and the Far East, Middle East, and Africa has increased at an even greater pace than that to European destinations, which were already fairly well-serviced before the formation of the carrier alliances. As a result of the increased service and traffic to these regions, fares dropped during the 1990s for many alliance gateways. The greatest impact for air travel between the United States and Europe from alliance formation has been on routes involving small cities on both sides of the Atlantic. Some examples include the Birmingham, Alabama gateway, from which bidirectional traffic with small European cities increased by 99 percent from 1995 to 1999 while fares dropped an average 34 percent, and the Sioux Falls, South Dakota airport, from which traffic with small European cities grew by 117 percent and fares fell by 33 percent between 1995 and 1999 (USDOT OST 2000, pp. 13-14).

Technological exchange has also been a feature of some of the global carrier alliances and has helped to improve service and market shares for many carriers. Innovations in computer seatdemand modeling and internet bookings helped carriers to optimize their international revenue passenger load factors, a measure of occupied seating capacity, from 69 percent in 1990 to 76 percent in 2000 (figure 9).

In addition to aviation deregulation and air carrier alliances, strong global economic growth helped spur increasing volumes of international passengers in the 1990s. From 1990 to 2000, the global economy grew by an annual average of 3.4 percent compared with 5.5 percent for the United States (both in current dollars) (IMF 2001b). As has historically held true, international travel increased in line with global economic growth. Between 1997 and 2000, U.S. gross domestic product grew at an even faster average annual rate-5.9 percent-compared with 1.9 percent for the world (IMF 2001a, 2001b). This coincided with years of aviation liberalization25 and the time when the benefits of new global alliances were taking hold. U.S. international air travel volumes increased, as travelers with greater disposable income took advantage of improved flight options and lower fares (figure 10).

Aviation Security

In the aftermath of the terrorist attacks of September 11, 2001, aviation issues such as airport capacity shortfalls, congestion, and liberalization-closely-related to large travel volumes-have taken a back seat to security concerns. When commercial flights resumed a few days after the attacks, there were noticeable changes in security procedures at U.S. airports. Airport screeners more frequently check bags by hand for explosives and weapons. (The list of objects that are prohibited for carry on because of their potential use as weapons has expanded to include, e.g., small knives, metal nail files, and corkscrews.) Similarly, screening has become a stricter process, in which laptops and other electronic devices must be removed from their cases before going through metal detectors. In addition, passengers are required to show legal forms of photo identification several times before takeoff-at check-in, at the screening area, and finally, at the gate before boarding. Furthermore, at the gate, passengers may be pulled aside for another search, either at random or on the basis of suspicion.

The present state of heightened security has essentially created a new environment of travel time, forcing passengers not only to count the total duration of delays and cancellations as possible inconveniences to their travel plans, but also to reserve ample time to clear security before each flight.

On November 19, 2001, President George W. Bush signed into law the Aviation and Transportation Security Act (Public Law 107-71). This act created the Transportation Security Administration (TSA) within USDOT that is intended to provide the nation's airports with federal screeners by November 19, 200226. In addition, federal security directors, representing TSA, are being assigned to the nation's 429 major airports to ensure consistency in security standards and to oversee enforcement of procedures. The Aviation and Transportation Security Act also requires that sky marshals be onboard some U.S. flights,27 requires cockpit doors to be strengthened, and mandates that all checked baggage be screened by explosive detection devices no later than December 31, 2002.28 Until that date, all checked baggage must be inspected by other means, such as X-ray or by hand, or be subject to passenger matching (i.e., baggage may not be loaded on the plane unless it is confirmed that its owner is also on board.)

Footnotes

19Revenue passenger enplanements are the total number of passengers boarding aircraft, including both originating and connecting passengers.

20 A revenue passenger-mile is defined as one revenue passenger transported one mile. A revenue passenger is defined as a person receiving air transportation from an air carrier for which the carrier received remuneration. Air carrier employees or others receiving air transportation (including infants) against whom token service charges are levied are considered nonrevenue passengers.

21Revenue passenger load factor is defined as revenue passenger-miles as a percent of available seat-miles in revenue passenger services. The term is used to represent the proportion of aircraft seating capacity that is actually sold and utilized.

22Available seat-miles are defined as the aircraft-miles flown in each interairport hop multiplied by the number of seats available on that hop for revenue passenger service.

23 U.S. airlines were deregulated following the passage of the Airline Deregulation Act of 1978.

24Code-sharing is a common industry practice where one airline offers services in its own name for a particular city-pair, but some, or all, of the transportation is provided by another carrier.

25 Of the 56 total U.S. bilateral Open Skies agreements, 43 have been entered into since 1997.

26 The Act requires that all air carriers and commercial charter operators providing scheduled and charter services and enplaning passengers from the United States must have security programs that meet the established requirements. See Public Law 107-71 for details.

27 Public Law 107-71 mandates their deployment on every passenger flight deemed a "high security risk" by the Secretary of Transportation (e.g., all flights to and from Washington, DC, Reagan National Airport). Marshals may or may not be present on other passenger flights.

28 The Act also assigns TSA the duty of coordinating the security of the other transportation modes.