Thursday, July 16, 2009

Updated Airline Outlook: More Gloom, Maybe Some Doom. Ever-Fainter Fare Sales

Anybody remember when the airline business used to be fun?

AMR, the American Airlines parent company, reported a loss of $390 million in the second quarter of this year, despite a 44.9 percent decline in fuel prices. "Revenues are down sharply from a year ago," said Gerard Arpey, the CEO. Revenues were down 22.3 percent over last year's second quarter, in fact.

The other airlines are about to report second quarter earnings, and the expectation is for more gloom and, perhaps, some doom, with some analysts suggesting that one of the network carriers might not make it through the winter.

Meanwhile, as I've been saying, stand by for another round of capacity cuts as airlines desperately try to reduce supply below sinking demand. So far they have not been able to do that, meaning that fares remain low on most routes -- except some routes where there is scant competition and enough demand.

Overall, that probably means a few more rounds of fainter fare sales as airlines try to raise cash and hold onto market share. But we are arriving at a day of reckoning in air travel.

"There is no longer any need for qualification. This is the biggest crisis the aviation industry has ever known, and it continues," Martin Broughton, the chairman of British Airways, said yesterday at the company's annual meeting in London.

The International Air Transport Association has been right on top of this deteriorating situation, issuing regular updates and forecast revisions. And the latest IATA report is glum for the industry.

"Efforts to resize capacity to better match demand and cut costs have helped, but have trailed behind the fall in traffic," according to the IATA Airlines Business Confidence Index for July. Regarding industry fortunes, "there is renewed pessimism about the outlook ahead."


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