Overview
The US air transportation system is large and complex, consisting of many various operations and programs to ensure efficient and safe flight. Aviation is a multi faceted industry, consisting of multiple sectors including: passenger travel, cargo/air freight travel, manufacturing, and management of the National Airspace System. Each sector comes with its unique features and challenges, and connects to the larger air transportation system.
The aviation industry has an enormous economic impact, influenced by passenger aircraft fares, price of manufactured aircraft parts, spending by visitors that travel by air transportation, and more. In fact, civil air manufacturing was the US’ largest net export in 2016. Combined with its associated sectors, civil air transportation: accounts for 5.2% of the US’ GDP, supports 10.9 million jobs, and contributes about 1.8 trillion dollars in total economic activity each year.
Over the last few decades, air transportation has become a necessity in American daily life. Air transportation allows passengers to visit new places, attend business meetings, see loved ones, deliver e-commerce packages, keep retail stores stocked, and more. The US air transportation system carried almost a billion passengers in 2019, and both the system and US airlines have experienced consistent growth in operations. The aviation industry is cyclical, heavily dependent on the economy, and US airlines have adapted to new methods to ensure profit, including ancillary revenue and mergers and acquisitions. These efforts have been widely successful - in 2018, US airlines gained revenue for the 10th year in a row. The aviation industry continues to adapt to the challenges of the expanding air transportation system and to handle demand as it increases each year.
In the last few decades, the aviation industry has been highly volatile, experiencing both large crises and stable periods of growth. 9/11 and the Great Recession forced the industry to make drastic changes, implementing new security features and altering airline business models, respectively. Now, as we experience the Covid-19 pandemic, the industry is faced with its largest challenge yet. We can anticipate significant industry changes in response to the pandemic, and will outline our projections in the “Aviation Outlook” page.
At the start of the 90s, the outlook was not too bright for the air travel industry. Many airlines were suffering various setbacks that meant that the industry was sustaining major losses. The Gulf War of 1993 and ensuing recession was the breaking point for some airlines, with big names like Pan Am going under. Nevertheless, as the economy recovered from the recession, so did the air travel industry. Operating net profits for the industry overall were positive for the first time since the 80s in 1994, and profits experienced steady growth for the remainder of the decade. However, a worsening economic climate at the turn of the millenium led to profits decreasing once again, leaving the industry in a weakened condition for the devastating crises that were to come.
Overall, the 1990s showed us the sensitivity of the airline industry to external conditions - in this case, the Gulf War.
The hijacking of four commercial jetliners on September 11th, 2001, was one of the most impactful events in aviation history. The terrorist attacks sent the industry into disarray, making an already meek outlook worse. In addition to a temporary massive reduction in air travel demand, 9/11 forever changed the industry’s dynamics. The implementation of the TSA across all major US airports meant that flying was no longer as simple as it once had been. Now, passengers had to suffer through the hassle of long security lines. This drove away a lot of demand as people were starting to choose other simpler methods of transportation over flying. The decrease of demand drove many airlines out of business, including heavyweights such as Transcontinental, and cost thousands their jobs as airlines were forced to make massive layoffs.
9/11 once again emphasized the aviation industry’s sensitivity to global factors, highlighted the necessity for aviation safety, and marked the widespread industry changes that can result from crises.
Post 9/11, the air travel industry went through many changes as airlines were forced to adjust to the new economic climate. With many airlines cutting their workforces, the air industry no longer had the capacity it did before 9/11 and thus many small regional flights were cut. Additionally, the major carriers shifted their flying capacity from the domestic market to the international market in search of profitability. These factors gave low cost carriers such as Southwest Airlines a chance to increase their market share. The surge of low cost carriers hitting the market led to fares being driven down, straining the already weakened major carriers. Nonetheless, the air travel industry was able to persevere through all the challenges it was facing, and by the mid 2000s many airlines were already seeing a return to profitability. However, this era only served to be the calm before the storm that was the global financial crisis.
The years after 9/11 emphasized the industry’s connection to economic wellbeing, and indicated how the aviation industry can recover from large scale crises.
The global financial crisis, also known as the Great Recession had economic repercussions that impacted virtually every industry. However, the aviation industry, which is known to be more susceptible to economic conditions than other industries, was especially devastated during this period of economic downturn. Passenger demand decreased as the disposable income of Americans decreased. With air travel demand plummeting, airlines were forced to completely rethink how they were operating in order to stay afloat. Many airlines completely revolutionized their business models, introducing ancillary revenues, cutting smaller flights, and leasing airplanes instead of buying them. These and many other changes made by the industry in response to the Great Recession helped airlines emerge from this crisis on track for a profitable future.
The Great Recession indicated the vulnerability and susceptibility of the aviation industry to economic factors.
Although airlines across the industry had made substantial changes during the Great Recession to maximize profitability, the lack of demand during the recession had caused the industry to shrink. Because of this, for the first five years following the recession the industry experienced relatively slow growth. However, in 2014 with the recession mostly in the rearview mirror, air travel demand growth started picking back up and remained high for the rest of the decade. The consistent growth in demand meant that most airlines finished the decade with great profit margins, setting high hopes around the industry for what was to come.
Once again, the 2010s highlighted the industry's capability to recover as the state of the economy improves.
The Covid-19 pandemic has had unprecedented impacts on every sector in every country across the globe. However, the air travel industry has been especially hit hard by the pandemic, with the downturn in air travel demand being deemed the "Great Travel Depression”. The virus has caused a tremendous decline in airline operations, dwarfing any impact other crises have had to the industry in the past. Aircrafts have been grounded across the country, flights canceled, and aviation staff laid off.
The Covid-19 pandemic had an enormous impact on the aviation industry, increasing safety concerns in addition to sending the economy into a global recession, further emphasizing the massive susceptibility of the industry to crises.
