The U.S. airline industry touches nearly every person’s life. Every day, airlines transport millions of people and goods quickly and easily around the globe. As a result, the health of regional, national and global economies is inextricably linked to this vital industry.
Today, the airline industry is at a crossroads. Nearly three decades since deregulation – and after multiple cycles of financial successes and failures – the industry remains fragile. Since 2002, five of the seven network carriers have filed for bankruptcy protection. Increased competitive pressure from low-cost carriers, the loss of consumer confidence in the system given its unreliable operating performance, and the transparency of pricing facilitated by the Internet and online travel distribution channels have all contributed to a precipitous decline in average fares and a significant impact on airline revenues.
And since 2006, fuel has emerged as the single largest industry expense, surpassing labor costs for the first time. These and other outside influences have all led to the conclusion that the airline business has been irrevocably changed, and new operating models and approaches are necessary.
Despite substantial challenges, the industry still is recovering from its latest cycle of financial struggles. The belief that a few quarters of profits equate to full recovery is more wishful thinking than reality.
For example, the next round of labor negotiations may be the most important milestone in the U.S. airline industry since deregulation. The recent round of labor negotiations and restructurings – many under Chapter 11 – led to significant changes in labor costs and productivity. With those changes, airline employees helped contribute to the short-term stabilization of the industry. Finding a new model for compensation that is durable and works to address the cyclicality of the industry will be critical. Just as important will be the efforts of management to identify non-labor cost savings that can be sustained as networks and operating models are reconfigured.
Only the data in broad historical context tells the full story. The goal of the ADP Web site is to confirm – and in some cases dispel – the conventional wisdom about the airline industry. The ADP represents a unique and comprehensive body of data that will enable a better understanding of the U.S. airline industry and its operating environment – including those factors that should be considered as the industry confronts consolidation, new competition and renegotiated labor contracts. The ADP provides a new resource for MIT students, the academic community, financial community and news media that we hope will be instrumental in identifying the fundamental cycles in the industry’s financial performance and the factors driving those cycles.We invite you to review this data, share your thoughts on the content and make suggestions for other areas of analysis that would be beneficial in assessing the industry’s financial health and prospects.