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Aviation History
1993
1993 - 0079.PDF
NEWS ANALYSIS AIRLINE APOCALYPSE NOW? The International Air Transport Association steadily increased its prediction for 1992 airline losses as the year progressed. The new year finds it still afraid of what the future holds. Airlines lost more money in 1992 than in their worst dreams. Final statistics are not yet available, but the Interna tional Air Transport Association (IATA) has added $100 million to forecasts of a $2.6 billion loss on international scheduled services. Privately, it fears a much larger loss by member airlines. Use of the word "apocalypse" by outgoing director-general Dr Gunther Eser to describe the state of affairs less than three months ago may have been more accurate than expected. Later this month, IATA will sound a formal airline-industry health warning. Although IATA's $600 million-loss prediction for this year remains in place for the moment, the $100 million added to 1992 predictions takes IATA forecasts for accumulated losses over 1990-3 to $10 billion. "We haven't dared look at [the last 1993 prediction]," says one official. IATA "...is scared that the loss will become $10 billion over just three years". US airlines are major contrib utors to recent losses, with al most $8 billion (nearly $2 billion of it in 1992) disappear ing over the past three years, according to the US Air Trans port Association (ATA). Growth in international scheduled traffic in 1992, in revenue passenger-kilometres (RPKs), compared with 1991, stabilised at around 8% in the closing months of 1992, slightly short of the increased capacity, measured in available seat- kilometres (ASKs). Overall, traf fic grew by about 14%, a percentage point ahead of the capacity increase (see chart). US airlines have concentrated on building route networks at the price of profitability, with Delta Air Lines adding almost 80% to international capacity, while United Airlines added over 70% to its Atlantic capacity, and American Airlines matched its capacity to passenger traffic bet ter than its two main rivals. One IATA analyst suggests that the carriers will re-direct their thoughts to profitability. In the Asia/Pacific region, the Ori ent Airlines Association mem bers suffer the same credibility gap, with capacity increases run ning fast ahead of traffic growth. "IATA 'is scared that the [accumulated] loss will become $10 billion over just three years'." The industry is suffering from "floods of red ink", says new IATA director-general Pierre Jeanniot: "[Combined] liberali sation, overly ambitious expan sion and a deep and long recession [have] led to commer cial chaos." Even in the most-profitable recent year (1988), IATA-airline passengers paid only "$8.44 net, over and above the full costs...on an international scheduled flight...It is evident that not enough of that was devoted to paying back loans or to reward ing [the] over-optimistic holder of airline stocks". Additionally, "...not many droplets of profit were left [for] retained earnings and reserves". Jeanniot argues: "The industry is notoriously bad at identifying that point [at which no seats should be sold]...Flights with break-even load factors of more than 100% do not make sense and should be eliminated." Jeanniot does not accept that consumerism should be the unique market driver: airlines should also "...be driven by the expectations of the financial markets". IATA is "dead worried" about the growing gap which has developed between traffic and capacity, says one official. In mid-1992, IATA predicted a $2 billion loss, which grew by 30% to $2.6 billion at the end of October, 1992. That increase took account only of performance up to June, during which time traffic growth was largely ahead of capacity increases. However, capacity growth has never been less than traffic development since April and has exceeded it in five out of the following seven months. A major concern for IATA is the airlines' lack of room for manoeuvrability in reducing ad ditional capacity scheduled for 1993; manufacturers have made major adjustments to production schedules which may not stand further relaxation. IATA officials fear that at tempts to delay planned 1993 deliveries will result in unac ceptable penalties. Airliners scheduled for 1994 delivery have been subject to down payments or progress sums, while those for 1995 have required deposits. IATA's forecast for a $600- million loss in 1993 must now be in doubt, given the unex pected disparity between pre dicted and actual performance last year. Forecasting over 12 months ahead will have been even more difficult than was monitoring "real-time" perform ance, which led IATA's 1992 year-end losses forecast to grow steadily as the year advanced. IATA analysts say that latest statistics encourage pessimism, with 1992 losses "falling on the wrong side of $2.6 billion". That 1993 prediction is simply the middle of a range of estimates between a slight profit and a $2 billion loss. "One of America's greatest in dustries is sliding down the tubes and no one in Washington appears to be paying any atten tion," says ATA. One IATA ana lyst observes: "The traditional question was whether Pan Am would see the winter through." Now, it might be asked about the whole industry. BY IAN GOOLD • IATA international scheduled passengers 1991-2 Percentage change over previous year v+30 §+25 CJ> ^+20 2+15 |+10 •s +5 s« o 2 -5 S-io -15 :Th- 1991 -l z +' 16 % - - - Mc 1 c nt ra ap n lie ac >n <n iy mc PK (A nt ) 3K 1 1992 Source: IATA [ I I I ! I < I I I NDJ FMAMJ SON r- +30 8+25 en g +20- 2+15- S.+10 c CO c sz +5 o | -10 -15 -I 1991 i - - - L Ye ]1 c ar ra ap to 11c (RPK) acity (ASK) date 1992 Source: IATA I I I I I I I I I 1 NDJ FMAMJJASON FLIGHT INTERNATIONAL 20 - 26 January, 1993 25
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