Lone Star Fading?: These are not the best of times for airlines serving Texas
In the summer of 2009, during the thick of America’s Great Recession, The Economist compared the divergent economic fortunes of the country’s two largest states: California was hurting, and Texas was thriving. Today, as even a quick glance at current airline trends will reveal, that trajectory has reversed.
Texas, to be clear, did endure a mild rough patch during the recession, when energy prices briefly dipped. But it didn’t have anywhere near California’s subprime housing exposure. As oil and gas prices quickly rebounded in late 2009, the Lone Star State was again on its way to outperforming California and much of America too. The boom would last well into the current decade, providing airlines as far away as Singapore a rare oasis of profits in an era of financially crippling fuel prices.
The end of the Lone Star boom, naturally, coincided with the collapse in oil prices that began in late 2014. Economic expansion did remain strong even well into 2015, but the pain is now unmistakable. According to the latest gross state product figures from America’s Bureau of Economic Analysis, the Texas economy contracted nearly 1% y/y in the first half of 2016. In the state’s latest completed fiscal year that ended in August, the economy grew just fractionally. California, meanwhile, with its thriving tech sector, has seen its economy and average incomes grow well above the national average.
It’s no surprise, therefore, to see California becoming perhaps the U.S. airline industry’s hottest battleground, while carriers in many cases retreat from Texas. In the 12 months to January, according to Diio Mi, the number of flights scheduled from all Texas airports declined 3% y/y, at a time when departures were up 1% nationwide. The disparity is similar with respect to seat counts: Texas down fractionally and the U.S. as a whole up 4%. California, meanwhile, saw flights and seats rise 5% and 8%, respectively. Ground zero for the Texas airline freeze is Houston, which represents for the energy sector what New York is for finance or San Francisco is for information technology. Traffic at Houston’s largest airport—Bush Intercontinental—maintained a modest 2% growth pace in the 12 months that ended in June, which corresponds to the airport’s fiscal year. This was lifted by the untimely introduction of several new routes from non-U.S. air…
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