Friday, August 30, 2013

What the Anemic Air Travel Data Tell Us About the Economy- Peter Schiff

By Peter Schiff

It may not be too controversial to assert that wealthy working people tend to fly much more than poorer underemployed people. When we are employed (especially at high level jobs) we tend to travel more for business. When our jobs pay well, we have the income needed to travel more on long distance vacations. It should come as the least surprising fact ever that citizens of wealthy nations tend to fly much more than residents of poor nations.

As a result of this basic understanding, the number of airline tickets sold on domestic U.S. carriers should provide a decent barometer of overall economic health. The numbers reveal that more people are flying than in the past, but the increase is less than half of what may have been expected based on the official GDP growth figures. 

According to research by the Massachusetts Institute of Technology's Airline Data Center, in 1995 U.S. carriers had a total number of 470.2 million "enplanements" (which is defined by how many times a passenger takes a trip). In 2012 that figure had gone up to 565.1 million, an increase of approximately 20.2%. This doesn't sound too bad.

But over those 18 years, the government reported real GDP expansion (after adjusting for inflation) of 2.9% per year on average. That adds up to 52%of growth. At minimum, you might expect the airline industry to keep pace. Instead, the increase has been less than half that.

The Bureau of Transportation Statistics has another data set that doesn't go back as far but offers a similar trajectory. They report a total of 629.8 million passengers in 2004, and 642.2 million passengers in 2012. This works out to be a 2% increase over nine years. But according to the government, real GDP has risen more than six times that (12.3%) over those nine years. By that yardstick, airline travel is lagging significantly.

Believe it or not, this has happened despite the fact that ticket prices have come down in relative terms. According to the airline industry resource,, the average price for a round-trip domestic ticket was $277.37 (1995 dollars) in 1995. In 2012 that figure had gone up to $355.75 (2012 dollars), an increase of 28% (the U.S. Department of Transportation (DOT) reports a similar figure of 28.4%). In terms of ticket price per passenger mile, the increase is even more modest, just 9% (13.8 cents in 1995 vs. 15.1 cents in 2012). Yet inflation since 1995, as measured by the CPI, is up 55%. This means that in relative terms, the cost of flying on an airplane has actually gone down. The DOT puts the decrease at 14.7% in 2013 dollar terms.

So Americans' air travel has fallen relative to economic growth even while the cost of flying has fallen by a significant margin. This simply makes no sense unless you allow for the possibility that the economy really isn't expanding as rapidly as we are being told.  It is possible that the added security and inconvenience of flying  since 9-11 has deterred people from flying, but I doubt that it's a significant factor. Yes, many carriers now provide fewer amenities to travelers, and baggage charges, change fees, and food charges have certainly increased, but those factors can't be that determinative. I'll go with the simplest explanation: as Americans get poorer, our citizens fly less.

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