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The business traveler is the big winner as the airline industry notches up service, though to some extent all travelers will see some improvement. Business travelers account for 60% of airline revenue so it's no surprise that the carriers cater to them first and foremost.
What will the changes look like? Spiffier first and business class sections on planes, for starters, with wider seats and more legroom. Planes will be cleaned on a more frequent basis too. Some carriers also plan to offer high-speed Internet service next year. Plus, passengers in first class and business class can expect tastier snacks and meals. Those flying coach will still have to either pay for meals or settle for peanuts.
Service will improve, as airlines begin hiring again. All passengers will soon be able to retrieve their luggage quicker as new baggage handlers are added. Extra gate agents will allow for faster check-in and boarding process and better help when connections are missed. An increase in the number of ticket agents will make the check-in process speedier as well.
However, new planes are at least five years away. Most of the roomier planes with better fuel efficiency that are coming off assembly lines will go to European and Asian carriers instead of U.S. airlines. When U.S. carriers stopped ordering new planes after 9/11, they were relegated to the back of the line to receiving the new models. The average age of the fleet owned by the major U.S. carriers hit 12.2 years at the end of 2006.
The airline industry is doing better overall, with its second straight year in the black and more to come. Profits are expected to total $3.9 billion this year and $5.1 billion in 2008. That's compared to about $2 billion in 2006, the first year out in the red since the 9/11 terrorists attacks. From 2001 through 2005, the industry lost about $35 billion, forcing many carriers into bankruptcy and thousands of workers to be laid off amid major cost-cutting efforts.
But there's one big uncertainty in the profit picture: Fuel prices. High oil prices will hurt, and only some of it can be offset with higher fares.
Tough labor talks are also on the horizon. Airline unions, which took huge cuts in pay and benefits while the industry was in the doldrums, are eager to renegotiate and try to regain some of their earlier losses. The airlines are just as determined to hold the line on compensation. The first showdown will be in May 2008 between American Airlines and its pilots.
Despite brighter skies for airlines, pressure to merge still runs high. "It's not a question of 'if'. It's a question of 'when,'" says Ray Neidl, an analyst with Calyon Securities. There is simply too much capacity. US Airways, Delta and United appear to be open to mergers, while Continental and American seem cautious. Mergers are fraught with challenges such as melding fleets, computer systems and labor, as well as clearing antitrust hurdles. One likely match-up is Delta with Northwest, given Delta's strong route system on the East Coast and Northwest's strong position in the West.
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