The airline industry faces two major concerns in 1988 -- the economy and how the nation's system of airports and air traffic control handle increased airline traffic.
Compared with the turmoil in the industry in recent years, however, 1988 shapes up as a period of relative calm and consolidation.
The airline failures and mergers that reshaped the industry in the past few years, giving it an uncanny resemblance to the industry before deregulation, have slowed almost to a standstill, although Pan American World Airways and Trans World Airlines are weak carriers that could be future acquisition targets. And complaints about airline service are fading both as a political issue and as reliable small talk.
What lies ahead depends on variables including the price of oil, whether businesses cuts back on travel and whether other consumers retain enough confidence in the economy to continue flying.
"Right now I'm cautiously optimistic for 1988 as far as industry earnings go," said Paul P. Karos, an airline analyst with L.F. Rothschild & Co. "If we are looking for a recession, it's going to be a very tough year for the industry. But if the consensus for slow growth is true, it could turn out to be a pretty good year for the industry."
The airline industry, which consumes massive amounts of fuel, will be a major beneficiary if overproduction continues to depress oil prices. Every penny kno1667982692fuel saves the industry about $130 million, he said.
On the other hand, labor cost savings, which have been a major benefit to the industry in recent years, won't add much to the bottom line this year. Most of the industry's labor cost savings have already been achieved (although Eastern Air Lines is now seeking major concessions from its work force), according to industry analysts.
On the revenue side, although the industry recently implemented a round a fare discounts, fare levels generally are considerably higher than they were a year ago. "The pricing environment is heading in the right direction for the industry, which is up," said Karos.
Capacity is shaping up as a major regulatory and legislative issue in the airline industry for 1988, both in terms of initiatives to limit traffic at certain airports and in arguments for expanding the system.
The House of Representatives has voted to require the Department of Transportation to establish capacity levels at airports that serve 2 million or more passengers in order to prevent airlines from scheduling more flights at peak travel hours than airports can handle. That type of scheduling contributed to the delays that helped touch off last year's consumer revolt.
One reason for congestion is the huge increase in airline traffic, which has grown from about 274 million passengers in 1978 to an estimated 450 million passengers last year. During that period, there have been no major new airports built. The last was the Dallas-Fort Worth airport, built in 1974.
The industry argues that funds for expansion could come from the Aviation Trust Fund, which has a $6 billion surplus. The use of the trust fund will continue to be an issue along with whether the Federal Aviation Administration, which oversees air safety, should be split off from DOT to become an independent agency.
On the regulatory front, DOT is expected to complete a study of computer reservation systems -- a major issue for the industry although it generates little consumer interest. The airlines that own the principal booking systems -- American Airlines with its Sabre system; United Airlines with Apollo, and Texas Air, which is challenging the dominance of those two systems with System One -- are engaged in an intense marketing battle. At stake are the huge profits generated by the systems, which allow travel agents to book flights, hotels and rental cars and generate tickets.
For the nation's railroads, this will be a year to focus time and attention on labor negotiations, with railroad management trying to pare costs. The Interstate Commerce Commission will review a proposal by Santa Fe Southern Pacific Corp. to sell the Southern Pacific to Rio Grande Industries, which could help determine the long-run fate of the Santa Fe Railway. SFSP has been the target of two groups that have indicated an interest in acquiring the company.
This year too, Congress will take up proposals to amend legislation that deregulated the industry.