At times, we all have a tendency to latch on to a figure which supports the argument we want to make. But, just as "one swallow doesn't make a summer", neither does a single figure tell the whole story. Nor, for that matter, does a figure from a series. Rather, it is the trend which is significant. You also need to focus on causal factors as well as outcomes.
Indeed, while the latest IATA forecast doubled its prediction for 2010 operating profit and halved the net loss, these changes are equivalent to 0.9% and 0.6% of the expected revenue for 2010.Looking back over IATA's forecasts, the turning point in terms of the worst being over was in the first quarter of 2010. This came after a period of almost two years when each subsequent forecast at both operating and net level was lower than the previous one.
However, the excitement that accompanied this announcement needs to be kept in perspective. We share the view that the recovery, which got underway in the latter part of 2009, is not universal in effect or speed. And, while we may have hit a turning point, it is what happens next that is significant. But it is perhaps even more vital to keep an eye on factors which could potentially interrupt that recovery, in terms of traffic, revenue and profit.
There is little doubt about the traffic recovery underway in Asia. It began in the final quarter of 2009 and, during the first two months of 2010, international passengers were some 12.8% up on the corresponding period in 2009. But rising fuel prices and a re-emergence of inflation might explain why the Association of Asia Pacific Airlines has only a cautiously optimistic outlook.
Over in North America, revenue and traffic have been heading south for 14 months. In 2009 revenue was some 18% down on 2008. But January showed 1.4% growth and February delivered a 4.5% increase, albeit from a low base. Passenger numbers were down in both months, falling 0.4% and 2.9% respectively.
The February figures were said to reflect "growing consumer confidence". Supporting this, indicators from the US Conference Board showed a month-on-month increase in consumer confidence in March, after a month-on-month fall in February. But a less encouraging feature is the $11.5 billion fall in US consumer credit in February, down 4.4% on a year earlier. This is negative because of the relationship between credit and spending, but positive for personal balance sheets. Similarly, the percentage of income saved continues to increase, despite the prevailing low interest rates, which will inevitably impact consumer spending.
Turning to Europe, Ryanair has just increased its 2010 net profit forecast to at least €310 million ($420 million) from €275 million
, based on a stronger than expected performance in the last few weeks of the financial year. But, while some airlines are seeing improvement, for most things are "less worse" rather than better.
EasyJet's latest figures show a 13.5% increase in passengers, against a 10% capacity increase, but we have to wait until May for its next trading update.Air France's March traffic figures
also showed an improvement, but it observes: "Comparables are benefiting from a favourable base." Similarly, BA observes that premium traffic is a little better, but "non-premium" is stable.
SAS, which has just launched its second rights issue in a year, may have carried 3.4% more traffic in March, but its yield and revenue performance remain well down. Its recent trading update for the first two months of 2010 showed revenue down SKr1 billion ($140 million), yields down 12.2% and pre-tax earnings some SKr540 million worse. In terms of outlook, SAS says: "The market continues to be unpredictable and the uncertainty regarding the timing of a recovery is considerable." This suggests that successful implementation of the Core SAS programme is even more important than it was before.
We often argue that generalisations are dangerous and it is perhaps more important than ever to consider data from a wide range of sources and dig deeper than before. There is clear evidence that some of the factors which underpin industry performance improvements are not all moving in the right direction. This means we need more than just a single figure on which to make a judgment. Although the "trend is your friend", ultimately it may not show what you had hoped for.