30 September 2008

CAPA: The strong will ride the storm

SYDNEY Ã¢â¬' In an analysis of the breakdown of financial markets in New York overnight, the Centre for Asia Pacific Aviation says that airline stocks were hard hit.

Ã¢â¬ÅâœAs the Dow Jones index fell over 777 points, most US airline stocks fell 8-12 percent across the board, with Northwest (-11.2 percent) and Continental (-10.7 percent) worst hit.

American and Delta each lost just over eight percent, while Southwest Airlines weathered the storm best of all, slipping three percent.

The price of oil dropped 10 percent, to close around USS96.

Ã¢â¬ÅâœFor airlines, this reduction on the cost side is a part-counterpoint to the economic crisis. But the growing negative impact on demand is progressively overtaking this good news,Ã¢â¬~ CAPA noted.

Ã¢â¬ÅâœThe direct impact on consumers is meanwhile still relatively muted, and their spending habits are not yet being inhibited by credit constraints, although the general concern in the air is hurting confidence.Ã¢â¬~

CAPA said, Ã¢â¬Åâœanecdotal evidence at airport retailers in established markets such as Japan already points to a downturn in sales of high value and luxury itemsÃ¢â¬~.

Along with the rest of the markets, investors were selling off airlines in Asia and Australia

Ã¢â¬ÅâœIn general, Asian carrier stocks have not suffered significant downturns in recent days and the lower oil price may help support prices today. But US legislators now rise for two days for the Jewish Rosh Hashana holiday, leaving the world in suspense," CAPA added.

Ã¢â¬ÅâœA US response of some sort is now essential, but as time passes and more banks are threatened - two more banks in Europe were bailed out by governments yesterday Ã¢â¬' it will become harder to reassure markets and consumers.

Ã¢â¬ÅâœAirlines are at the pointed end of this delicate consumer and business equation and strong balance sheets will determine who rides the storm best in coming days,Ã¢â¬~ CAPA concluded.