This Week's Herman Trend Alert

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  The Herman Trend Alert

June 18, 2008

The Near-Term Future of Air Travel

United States citizens are beginning to avoid air travel in significant numbers. This fact is in part responsible for the airlines announcing substantial cutbacks in service to a wide variety of US cities. Across the globe, airlines that expected to earn sizeable profits this year will instead have gigantic losses. . . in the billions.

The secretary general of the International Air Transport Association (IATA), Giovanni Bisignani recently said, "The industry is in crisis, perhaps the biggest crisis we have ever faced." (IATA members account for over 90 percent of air travel worldwide.) According to a survey commissioned by the Travel Industry Association (TIA), US citizens are looking for ways to stay away from air travel because of higher fares, security hassles, and chronic schedule and service disruptions. Ask frequent flyers and they will tell you that not only is air travel not "fun" anymore, but it is a downright chore.

The member airlines of the IATA face losses of USD$2.3 billion in 2008, due to sky high fuel costs. Moreover, it was only a few weeks ago that the organization forecast profits of USD$4.5 billion (2.9 billion euros) for the industry. However, oil prices topping USD$135 a barrel turned their profit projections into huge losses.

After recovering from the enormous losses resulting from the 2001 September 11 attacks (about USD$40 billion), the industry finally posted profits of USD$5.6 billion dollars last year.

The TIA study found that travelers avoided 41 million trips over the past few months. These trips cost the US economy USD$26.5 billion over the past year, including lost ticket sales and travel-related business expenses, and lost tax revenue.

These reductions in trips, the increasing fuel costs, and the slowing US economy are the basis for virtually all of the US airlines decreasing their numbers of flights, even to popular vacation destinations like Honolulu, Las Vegas, and Orlando.

Expect more cuts and service disruptions, as airlines get rid of experienced employees to hire lower cost contractors in a misguided effort to reduce expenses. These reductions in service will also affect the attractiveness of US destinations to foreign tourists.


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