Figures for the first six months of 2000 continue to paint a robust picture of world airline traffic, with all regions posting steady gains. However, growth has been more than matched by massive increases in fuel prices.

European carriers generally matched the strong performance of their counterparts across the Atlantic in the first half of 2000 (see US results on previous page). Highlights included double-digit passenger traffic growth from Iberia and Sabena.

The Association of European Airlines (AEA) reports that its members collectively raised passenger load factors by over two percentage points to 71.8% on international routes (see table on page 116). Other good news saw total international traffic rise by 8.9%, whereas capacity only grew by 5.5%. While growth on the North Atlantic continues to run at 10%there has been a marked cooling since the excesses last summer.

Yet the first-half financial results now starting to appear demonstrate how the operational gains are being eaten away by fuel rises. The SAirLines - Swissair, Crossair and Balair - paid an additional $98 million for fuel in the first six months. This wiped out any prospect of a profit, and the airlines dipped to a loss of $90 million. "If fuel prices stay at current levels the airline result will remain negative in spite of increased capacity and rising productivity," warned SAirGroup chief executive Philippe Bruggisser.

Although it hedges a large part of its fuel needs, SAS said the cost of fuel rose £77 million, or 69%, in the first half. But on the positive side, SAS welcomes signs of an easing of overcapacity within Europe which had hit profits in 1999.

The Lufthansa group also produced a strong improvement for the half, showing operating profits of $317 million, up 18%. It has now revised its profit expectations upwards for the full year. A combination of high oil prices and the strength of the dollar caused spending on fuel to soar by $222 million or 64%. Like many others, a comprehensive hedging policy softened the blow to a large extent.

KLM believes its performance held up well despite a doubling of fuel costs. It managed to sustain strong growth in both passenger and cargo business through the first half, and for the April to June quarter saw an overall yield gain of 4%, building on a 1% gain from January to March.

As KLM sees the results of its "Baseline" cost reduction programme feed into the bottom line, it believes an e-business venture with 13 other carriers will make an impact too. It expects to save $13 million annually as a result of electronic purchasing, said Rob Abrahamsen, chief financial officer.

British Airways is cautiously optimistic for the revenue outlook over the summer season, with lower capacity growth in the market supporting yields and load factors.

Asian growth

The first six months of the year also brought further evidence to show that Asia-Pacific carriers are sustaining their recovery. Leading the pack, Cathay Pacific saw passenger numbers soar by 17%. The improved performance was especially marked in its key North Asian markets. However, it noted that although passenger load factors were strong, passenger yields only rose marginally, and were still well short of levels seen in the early 1990s.

Qantas is one Asia Pacific carrier that believes its fuel hedging policy has paid great dividends. "It is significant that although market prices for fuel increase by more than 44% during the year, Qantas was able to reduce this impact by over 80% through our active fuel hedging strategy which generated savings in excess of $159 million," said Margaret Jackson, whose appointment as chairman became effective on 1 August.

In the US, while the big three of American, Delta and United recorded modest traffic rises, Northwest, Southwest and America West made major gains. As usual, the most impressive performer is Southwest, which saw passenger numbers rise to over 30 million.

Source: Airline Business