While the Department of Transportation’s Essential Air Service Program is supposed to entice airlines to serve smaller markets, rising gas prices and airline consolidations are driving them out. Aviation consultant Mike Boyd joins Peter to look at what’s to come for smaller markets and U.S. aviation.   

Peter Greenberg: Every time I look around, I’m seeing airlines pulling out of markets. For example,  look at the Cincinnati Airport or the Memphis Airport. There are 16 airports served by AirTran now that are being merged in with Southwest. How bad is it going to be, Mike?

Mike Boyd : There are big changes happening the economics of the airline business. The real name of the game is markets lost by AirTran Southwest. Southwest bought AirTran, its costs are so high that it can’t operate a lot of what they bought.

Sarasota serves 270,000 passengers a year and Southwest said they can’t take it.

PG: Mike, isn’t it ironic that some of the communities that made a deal with AirTran when Southwest wouldn’t fly there like Wichita, Kansas or Pensacola, Florida are the airports that Southwest/AirTran is no longer going to serve.

MB:  Sarasota put up just under $2 million. It was highly successful, but Southwest said its costs were too high so it is pulling out. By the way, this is the first time that a legacy carrier, United, is replacing a low-cost carrier, Air Tran, in markets like Chicago and Sarasota.

PG: Isn’t it nice that somebody is actually stepping up to the plate to do that?

MB: It is nice, but airlines are not a growth industry. Airlines aren’t putting extra seats out there so they don’t have to compete with each other.

The capacity in 2012 is going to be down about 2.5 percent from 2011 and we’re going to see much higher fares due to fuel prices.

PG: We know about consolidation, we know about mergers, we know about fewer planes, and fewer seats, but is there anything out there in short-haul markets, to save us because?  There are airlines, like Allegiant, with different business models. They are just flying twice a week between two cities, but at least they are serving those small markets

MB: Allegiant will correct you very quickly when you call them an airline. They are a travel company and they go after vacation travelers. Their biggest competitor is Home Depot because they are both competing for a discretionary dollar.  Youngstown, Ohio has 60,000 passengers a year but they have no air service to speak of because you can’t fly there unless you’re going to two places in Florida.

About a hundred airports are gong to lose local air services over the next 10 years. It is going to be a smaller air transportation system, because of the cost of flying.

PG: Is there a hope for high-speed rail to ever come in and help us the short haul market?

MB: We live in a political world. There is a place for high-speed rail, but it won’t replace inter-city transportation. Albany to Boston used to have 45,000 passengers a year and its down to 4,000 now. The world hasn’t died because of it.

PG: Give me some good news, Mike.

MB:  We aren’t doomed. We’re going to adjust to the fact that air transportation doesn’t work to or between small communities anymore, so we need to figure out other ways of communicating to keep these places connected and air transportation won’t be one of them, but we’ll find a new way.

Have you felt the pinch of airline consolidation? Share your experience with Peter in the comments.

For more information on the state of U.S. aviation, read:

• Delta Cutting Flights: 24 Small Airports Affected
• What Airline Consolidation and the AirTran Southwest Merger Mean for Travelers
• What Airline Merger Rumors Mean for You
• How to Save Money by Flying Alternative Airlines

By Peter Greenberg for Peter Greenberg Worldwide Radio