A recovery in sight for US and European airlines
Saturday, 19 Apr, 2010
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TravelMole Guest Opinion by Euromonitor International travel and tourism reserach manager Michele Grant
Although tumultuous weather kicked off 2010, it was not enough to deter the airline industry’s recovery that began in the final months of 2009.
The recovery seems to be gaining momentum although fortunes are mixed among the regions and carriers.
Capacity cuts in the US payoff
The aggressive capacity cuts initiated by US carriers during the oil price spike are paying off as demand continues to grow compared against 2009 figures. Increasing load factors in the first quarter of 2010 allowed airlines to increase yields over last year’s performance.
However, it is important to note that the increases are much lower than the near double digit declines experienced in the first three months of 2009 and yields remain depressed compared to 2008 figures.
The five major legacy carriers (Delta, American, United, US Airways and Continental) overall reported slightly lower revenue passenger miles for domestic traffic in the first quarter of 2010.
This contrasts with the increases for the major low-cost carriers, Southwest, JetBlue and AirTran (1.6%, 7.1% and 7.5% respectively), suggesting that the low-cost carriers continue to steal share in the domestic market.
However, the major carriers reported strong increases in international traffic despite heavy capacity cuts.
A strong re-bound is underway for Asia Pacific routes while Latin America was also bright spot.
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Year over Year Growth for Q1 2010 (%)
|
|
||
|
Airline
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Geography
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Revenue Passenger Miles
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Available Seat Miles
|
|
Delta Airlines
|
Domestic
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-0.9
|
-2.4
|
|
|
International
|
-2.3
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-7.5
|
|
American Airlines
|
Domestic
|
-0.4
|
-0.9
|
|
|
International
|
1.7
|
-4.9
|
|
United Airlines
|
North America
|
-2.6
|
-5.5
|
|
|
International
|
4.0
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-6.9
|
|
US Airways
|
Domestic
|
-4.4
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-4.8
|
|
|
International
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-7.4
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-5.2
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|
Continental Airlines
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Domestic
|
0.7
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-1.7
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|
|
International
|
11.1
|
1.9
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|
Southwest Airlines
|
Domestic
|
0.4
|
-4.2
|
|
JetBlue Airways
|
Combined
|
7.1
|
6.1
|
|
AirTran Airways
|
Combined
|
7.5
|
6.1
|
|
Source: Company reports
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|
|
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Labour unrest derails the major European carriers
Labor unrest impacted the first quarter traffic results at Lufthansa, Air France and British Airways with Air France and British Airways experiencing declines in demand compared to the first quarter of 2009.
However, both Air France and Lufthansa noted that the Middle East and Africa have been positive for them. Lufthansa delivered the best performance as it benefits from its acquisitions and its corporate strategy to link the oil producing countries to Germany.
Similar to the US, the main low cost carriers, Ryanair and EasyJet, reported strong growth in passengers, benefiting from the labour strife, a consumer shift to less expensive flights and competitors failing. EasyJet, in particular, has reaped the rewards from its strategy to lure more business travellers.
The recovery comes with risks
The continued recovery in the first quarter of 2010 bodes well for the busy summer season.
However, the air travel disruptions in Europe due to the volcanic ash will have a negative impact on performance in the second quarter.
The recovery is not expected to be smooth sailing. A global economic recovery, while encouraging demand for air transport, could also lead to another run up in oil prices. Revenue improvement could embolden labor to stick to their demands and lead to more strikes in Europe and cause a few in the US. Another risk is that airlines become over ambitious with expansion and flood the market with seats too soon.
Airlines have strategies to combat these issues. An increase in oil prices will likely lead to slower capacity growth or encourage more consolidation to help retain pricing, resulting in higher fares or fuel surcharges.
Another means of driving revenue in a potentially high-cost environment will be ancillary revenues.
Phil Davies
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