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News Article - December 23, 2008

WINGING IT: LOOKING BACK, 2008 PRETTY GOOD AT PHL  
By Tom Belden

  The end of a year always prompts me to look back, tallying the peaks and valleys travelers have experienced, followed by some educated guessing about what to expect in the next 12 months. Overall, this year turned out to be a pretty good one for the airlines - with some scary moments along the way, of course. And that leaves them in strong position heading into 2009, though there's uncertainty because of the economic slump.

   Some of the best news of 2008 involves Philadelphia International Airport and what travelers think about it and the airlines that serve it. My best way of gauging your opinions is to check my e-mail inbox. Far fewer of you offered general or specific complaints about PHL in 2008 than over the last three or four years. Among the reasons for that change is development of a better working relationship between US Airways and city government, something Mayor Nutter vowed to do even before he took office in January.

   Unlike 2006 and 2007, when airport and airline officials were squabbling over how to use the airport's limited gates, their relationship now is much more collegial, with regular meetings to discuss problems and solutions. US Airways' management in Arizona deserves credit as well for fostering the more cooperative spirit. Starting in 2006, the airline hired more customer-service employees and began renovating its facilities, including upgrading baggage-handling equipment that had been neglected for years.

   In early 2008, it took another key step, hiring seasoned professionals from other carriers to run the Philadelphia and East Coast operations, maintaining momentum that began building the year before. US Airways also made it clear that its Philadelphia hub operation is one of its greatest assets, generating a quarter or more of its revenue. While other airports suffered deep cuts in service because of high spring and summer oil prices and the recession, airlines trimmed only a handful of domestic flights here, and US Airways announced plans to start more nonstop flights to Europe and to Tel Aviv, Israel.

   The whole industry responded with uncharacteristic swiftness to what Kevin P. Mitchell, chairman of the Radnor-based Business Travel Coalition, called their "near-death experience" of the oil-price surge and resulting losses for the airlines. They began parking airplanes and laying off employees in what became, as the economy deteriorated further, one of the largest reductions in service ever seen, reducing the number of available seats by nearly 15 percent. Helping airlines, of course, were an unprecedented number of fare increases by major carriers - close to three dozen of them. In the last two months, airlines have returned to limited discounting to stimulate traffic. But given the capacity cuts, they don't have to do as much fare-slashing as they did in recent years to fill empty seats.

   Trying to recoup some of their higher fuel costs, airlines fell in love with a la carte pricing and service fees that now bring in hundreds of millions of dollars in revenue. Only Southwest, the proverbial "let's zig while others zag" airline, resisted completely. I'm not sure why I haven't heard more complaints about the fees, especially now that fuel prices have plunged. Only in the last few weeks have international airlines begun trimming their fuel surcharges, or in a few cases, dropping them altogether. It's hard to determine if domestic fuel surcharges have come down since airlines don't break them out in ticket prices.

   But the diminishing surcharges are one reason, along with a sharp drop in demand because of the economy, that airline observers expect international fares to be lower in 2009 than they were this year. One other major airline story this year, the merger of Delta and Northwest, may have received less attention than it deserved in this column. But its effect on Philadelphia service is likely to be limited - unless it leads to more industry consolidation that reduces competition.

   The service fees most passengers now pay, coupled with the plummeting fuel costs and capacity reductions, may allow the airlines as a whole to make money next year, in striking contrast to so many other industries. But that leads to the greatest uncertainty for 2009: How will the recession affect the entire travel industry? As the financial crisis deepened this fall, forecasts for business- and leisure-travel spending next year got gloomier and gloomier.

   Here's one startling statistic to ponder: PKF Hospital Research in Atlanta is projecting an average occupancy rate of 58.3 percent for U.S. hotels in 2009 - the lowest in 20 years.

Source -Philadelphia Inquirer



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