As we concluded in last month's column, against the background of the still rising oil price, one great unknown is how much further forecasts will need to be cut for the current year and how much lower airline profits will be in 2011 when compared with 2010.
Since last month IATA has published its latest forecast, which contained a modest downgrade (operating profit $2.1 billion lower and net profit $0.5 billion lower than pervious forecasts), but also highlighted the fact that profit is the outcome of several large numbers moving in different directions. In this respect its expectation is for fuel to be $10 billion higher than the December forecast and non-fuel costs to be $13 billion lower.
This latter outcome appears to be predicated on better utilisation and falling unit costs. This last point is clearly important - not least as too much capacity coming back too soon will restrict the ability of airlines to recover the higher fuel costs from raising fares or surcharges.
We place great store in some of the fundamental rules of economics and in particular the relationships between supply, demand and price. Supply-side decisions by airlines represent a substantial advance commitment - whether measured in years when placing an order - or for the next 12 months when determining seasonal capacity, for example where the key decisions for the April-October summer season are taken in the previous November.
Even in a more stable or near "steady state" environment there are risks, but in the current and recent past environments the consequences of "getting it wrong" are magnified.
Although there was an increase in the number of stored aircraft as the downturn gathered momentum, the latest figures suggest only a small decline from the peak. However, as well over half of the 2,500 parked aircraft are unlikely to re-enter service, while the other aircraft represent a source of supply of capacity, it is the change in utilisation that in the downturn was the key method of adjustment, just as it has been the source of a marked increase in capacity equivalent of some 7% in the final quarter of 2010 and into 2011.
In 2010, airlines were one of the best performing sectors in stock market terms, and although there were wide variations in actual performance, as a group they were estimated to have outperformed the relevant market index by some 23%.
But what a difference a couple of months makes. Just as the share prices benefited from airlines being seen as a geared play on an improving economic background, the converse is now the case as fears over the ultimate level of the oil price and its direct as well as lagged effects on economic growth are now in the foreground.
The fact that stock markets and investors look forward is clearly shown by the fact that despite reporting outstanding results, Cathay Pacific's share price is 5.4% lower than a month ago. Indeed, over the past month there have been some interesting (and generally, although not always, downward) movements.
Based on data from the Financial Times on 9 March, the worst performing share in our sample was Tiger Airways, down almost 16% in the past month. In the same region AirAsia and Cebu Pacific are down by over 8%; elsewhere, the US majors have fallen by between 7.4% and 9.6% with the European legacy carriers down by between 4.3% and 8.3%. This is, however, only a snapshot and many airlines are now well below their 12-month high points.
A review of analysts' recommendations appears to show that the bulls significantly outweigh even those who are neutral, even if target prices may have been trimmed and the horizons for performance expanded.
The key question is which direction share prices take from here and the extent to where we are now represents a buying opportunity, with most if not all of the "bad news" priced in.
The volatility of the market suggests that momentum is provided by events and the fears associated with those events ebbing and flowing, rather than corporate results.
In the near term the key issue is the oil price, followed by geopolitical and economic concerns, all of which have a direct effect on the financial performance of airlines. As things stand now downside risks clearly remain and may not yet be fully priced in.