The US industry is on track to lose four years of growth according to the FAA, and even that counts on some optimistic forecasting, writes David Field

Ever the most optimistic of forecasters, the FAA has put off its expectations for a swift and strong recovery in the US air market. The industry has simply "lost the last four years' worth of growth", in the words of FAA administrator Marion Blakey. Among other casualties is the FAA's long-held prediction that by the 2010 fiscal year (ending September) the US airlines would finally have passed the billion passenger a year mark. That now looks unlikely before 2014 at the earliest. In the meantime, the industry is still struggling to regain the pre-crisis traffic levels of 2000.

Blakey said in releasing the agency's annual 10-year forecast that airlines will not re-attain those traffic levels until 2005 or 2006 at the earliest, with international returning before domestic. All in all, she said, the trend reflects a "very disturbing phenomenon".

Looking across the whole decade to 2014, the figures are more encouraging: passenger traffic is forecast to average growth of 3.5% annually on domestic services and by 4.7% on international routes. However, those predictions rely on a domestic growth spurt in the next year, balancing out slow progress this year.

Few of the markets are forecast to make up their lost traffic in the immediate future. Latin America could recover soonest, surpassing the 2000 peak next year, but other markets are expected to have to wait for 2006 or beyond. In the longer run, the FAA notes that the decade's strongest growth should be on the transpacific and Latin American markets and the weakest gains on transatlantic routes.

However, that is without assuming a strong impact of war or of more terrorist attacks, according to the FAA's director of aviation policy and plans John Rodgers. He also assumes inflation remains under control and energy prices rise only 0.5% annually. But he concedes that even an optimistic forecast faces "much more downside risk" than potential growth.

Yields also look weak. The FAA assumes that in real terms, factoring out inflation, domestic yields will not return to their pre-11 September levels until 2012. For the US majors, domestic yields are expected to rise by a paltry 1% this year, making up none of the ground lost over the past two years which left them down by more than 19% from the 2000 peak. Even with a modest recovery next year, yields are expected to average an annual fall of 1.4% through to 2014 as low-fare competition keeps down fares. International yields would fall by 0.6% in real terms over the decade, as expanding alliances and open skies pacts increase competition.

The FAA also assumes that the economy will still drive demand as it has in the past, with air travel continuing to account for an average of just over 0.9% of the gross domestic product (GDP). That assumption would seem to be at variance with the growing belief that the GDP share is not going to remain flat and has in fact fallen from just under 1% to as little as 0.7%over the last couple of years.

Even though the short-term outlook is not positive, Rodgers says the FAA does not expect any carriers to cease operations. In its forecast, a central planning document for the agency and so for the industry, the FAA does not estimate when the troubled carriers would again turn a profit

Source: Airline Business