Why the Airlines Are Weathering the Recession

Dec. 10, 2008 — -- This December, some of us will be spending less time in the mall -- and more time in the kitchen. At least, that's what one acquaintance recently told me; she said when it comes to gifts this year, "Forget the flat screen, I'm baking cookies!"

I don't know about the baking part but a recent CNN poll seems to confirm that people are indeed cutting back; it notes that people are "stressed out" this holiday season, and two-thirds of those questioned said they'll relieve some of that stress by cutting back on gift spending. And nearly as many claim they're slashing other personal budget items -- including leisure travel.

But guess what: The economics of the airline industry are not all that bad. And that's pretty good news for us passengers.

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By "not all that bad" I mean that the airlines are not in the kind of terrible trouble they were in, just after 9/11. And that's because they've had some practice with crises, you could say. This year's wild ride of up-and-down oil prices was a dress rehearsal for the current financial meltdown. And "wild" is the word: Merrill Lynch now speculates that the price of oil could drop to $25 a barrel in the spring -- even more amazing, the CEO of Gulf Oil says you may see pump prices as low as $1 a gallon.

Cheap jet fuel prices should trump even a 15 to 20 percent downturn in demand. In fact, Morgan Stanley analysts said this week that "falling fuel prices and nearly unprecedented domestic capacity cuts have laid the foundation" for a pretty decent 2009 for airlines.

Let me amend that: decent in terms of other industries -- well, like the Big Three automakers. An aside to the car execs: yes, I know, airlines and automobiles are apples and oranges, but if the airlines have learned any corporate lessons in the past few years, it's that bankruptcy is not necessarily a bad thing.

Meanwhile, analysts do expect an overall 6 percent decline in U.S. airline passenger revenue in 2009 and business travel will "weaken" as they say, but it could be a lot worse. In fact, it will be worse for some sectors of business travel -- for hotels, according to Credit Suisse -- meaning airlines will hang on to a bigger share of the corporate wallet.

And it's generally agreed that airlines still have to cut capacity, and they will, probably by another 5 to 10 percent. That, and the cushion provided by lower fuel prices, will help them stay on a relatively even keel.

And what's that mean for you? I'm glad you asked. For one thing, it means you're still going to pay all those fees. Yes, I know they were put in place when fuel costs soared and fuel costs have now taken a dive. But these fees help airlines pick up the slack for lower business demand, lower anyone demand. And, frankly, the fees just make too much money for the airlines -- literally hundreds of millions of dollars every year -- so, no one is even going to consider killing this platinum goose.

On the other hand, maybe we'll see more airfare sales. We got a taste of that for the holidays -- unprecedented, last minute Thanksgiving, Christmas, Hanukkah, New Year's-and-beyond sales -- and we loved it (well, procrastinators did while the prudent ones who bought earlier, as you're supposed to do, were somewhat less enamored).

As noted, the airlines still have some tinkering -- and capacity cutting -- to do, and until they get it just right, empty seats should mean more airfare sales. And, as I noted last week, there are already real bargains to be had in business class to Europe.

But say you're looking for a big splashy summer vacation and you're not sure there will be any sales then -- what to do?

Well, you could do what our parents did at Sears or Montgomery Ward and buy on layaway. Yes, a 2-year-old Web site called eLayaway allows travelers to buy on the installment plan, and businesses like Hyatt Hotels, are expected to begin marketing gift cards through eLayaway for hotel stays, meals and more -- and now airlines are said to be pondering joining eLayaway for anyone interested in buying flights on the installment plan.

So, amid the stress of the season, there are a couple of things to be thankful for: There still is an airline industry (and if you'll recall, there was some doubt on that score when so many carriers were going under in the spring); there may be more, good airfare sales in our future; and we can be grateful that we are not running a U.S. car company.

Now, if you'll excuse me, I think I smell cookies burning.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

Rick Seaney is one of the country's leading experts on airfare, giving interviews and analysis to news organizations, including ABC News, The New York Times, The Wall Street Journal, Reuters, The Associated Press and Bloomberg. His Web site FareCompare.com offers consumers free, new-generation software, combined with expert insider tips to find the best airline ticket deal.