U.S. Carriers May Be Only Bright Spot Amid Poor Global Airline Industry 2009 Outlook

The Geneva, Switzerland-based International Air Transport Association (IATA) announced a revised outlook for the airline industry in 2009. Due to the worsening economic conditions worldwide, IATA increased the global loss outlook from $2.5B in December 2008 to an expected $4.7B loss in FY2009.

Some of the key points from the news release are:

• Air Cargo demand is to decline 13% this year
• Passenger traffic is expected to contract by 5.7% YoY
• Asian carriers are going to be worst hit with a fall of nearly 7% in demand
• To and from traffic to China and India will decline
• North American carriers are expected to report a profit in 2009 due to careful capacity management and lower jet fuel prices
• European demand will fall by nearly 7%
• Demand in Latin America is projected to fall by 7.8%
• The Middle East is the only region that is projected to have positive growth this year

Giovanni Bisignani, IATA’s Director General and CEO said:

“Fuel is the only good news. But the relief of lower fuel prices is overshadowed by falling demand and plummeting revenues. The industry is in intensive care. Airlines face two immediate fundamental challenges: conserving cash and carefully matching capacity to demand.”

The above statement is an excellent depiction of the current state of the airline industry.

Some of the airline ADRs are:

• TAM (TAM) and Gol Linhas Aereas Intelligentes (GOL) of Brazil
• RyanAir (RYAYY) of Ireland
• China Eastern (CEA) and China Southern Airline (ZNH) of China
• Lan Airlines (LFL) of Chile

Many of the US carriers such as Delta (DAL), Continental (CAL) and Southwest (LUV) may perform better than their peers in other countries. However they will also be impacted adversely due to the slowing economy. Consumers will cut down on unnecessary travel while business travelers will use other means of communication such as video conferencing.

Comments

[j_remington:]

"mpacted adversely due to the slowing economy"

this will outweigh any cost savings

Mar 25 12:50 PM

[Chris B:]

Sorry but I refuse to invest in an industry that relies on discretionary spending, is highly vulnerable to petroleum prices, and wouldn't even exist without a dozen layers of government subsidies. I recall one study that showed that the airline industry as a whole didn't generate profits, just sucked the capital of investors and the government. With so many great opportunities available today, why invest in an industry that is a stinker even in good times?

Mar 25 04:13 PM

[Jeff M:]

Not sure what government "subsidies" you are referring to but the airline industry is one of the most heavily taxed industries in the US. Add to that fees the government also imposes (not optional) and you get about 42% of the ticket price going to fee's and taxes.
Here are some...
Landing fees, PFC fees, Security Fees, Fuel taxes, Federal Segment Fee, US Taxes, and these are just the ones I know off the top of my head. And if "O" gets his way add to that a "Cap and Trade tax". Of course I didn't include the Corporate Taxes. The only subsidies I know of are some that carriers get to operate (at a loss usually) out of smaller cities or Alaska. Maybe you can let us know what subsidies you are referring to.


On Mar 25 04:13 PM Chris B wrote:

> Sorry but I refuse to invest in an industry that relies on discretionary
> spending, is highly vulnerable to petroleum prices, and wouldn't
> even exist without a dozen layers of government subsidies. I recall
> one study that showed that the airline industry as a whole didn't
> generate profits, just sucked the capital of investors and the government.
> With so many great opportunities available today, why invest in an
> industry that is a stinker even in good times?

Mar 25 04:34 PM

[Chris B:]

How many airlines build their own airports with their own funding?
Run their own air traffic control?
Pay for their own security?
Spend trillions of dollars defending the source of their fuel?



On Mar 25 04:34 PM Jeff M wrote:

> Not sure what government "subsidies" you are referring to but the
> airline industry is one of the most heavily taxed industries in the
> US. Add to that fees the government also imposes (not optional) and
> you get about 42% of the ticket price going to fee's and taxes.
>
> Here are some...
> Landing fees, PFC fees, Security Fees, Fuel taxes, Federal Segment
> Fee, US Taxes, and these are just the ones I know off the top of
> my head. And if "O" gets his way add to that a "Cap and Trade tax".
> Of course I didn't include the Corporate Taxes. The only subsidies
> I know of are some that carriers get to operate (at a loss usually)
> out of smaller cities or Alaska. Maybe you can let us know what subsidies
> you are referring to.

Mar 26 09:58 AM