Improved US airline traffic hides underlying problems

ALEXANDER CAMPBELL / NEW YORK

Load factors are getting better, but yields continue to fall for 'overconfident' airlines

First quarter results for the major US airlines, released last week, show load factors improving as passengers return, but the carriers are still suffering disastrous losses. Sales fell by between 17% and 28%, resulting in losses in hundreds of millions of dollars.

Yields are also still well down, representing in many cases the discounted fares offered to regain passengers. US Airways, which lost $298 million in the quarter, may need government support to survive and rebuild, it said on 18 April.

The optimism created by recovering passenger numbers may create overconfidence, according to speakers at the International Air Transport Association financial summit in New York this month.

Chris Tarry, airline analyst at Commerzbank, warned the summit that "traffic and capacity may have come back too quickly", leading airlines to relax post-11 September cost controls. He also warned that restoring the status quo is risky, as "pre-9/11 we estimated [that there was] 30% excess capacity" in the international market.

Aviation economist Rigas Doganis pointed out that after the Gulf War in 1991 traffic recovered within a year, but profitability did not return to pre-war levels until 1994. "The crisis will be much longer lasting than we anticipate."

Problems started before the attacks, said IATA director general Pierre Jeanniot, adding that airlines were "ill-prepared to weather even a normal economic cycle". He blamed chief financial officers for ignoring their duty to make their airlines "not the biggest, but the most profitable", and speculated that fear of losing market share had made airlines discount fares too widely.

Yield had been falling steadily for the last 10 years, said IATA chief economist Peter Morris, nearly halving on many international routes and driving airlines into a vicious circle of rising traffic, capacity, costs and losses. In 2001, the industry was losing around $50 per passenger. Morris' forecast is bleak: a net total 2002 loss of $6 billion, transatlantic traffic not recovering to 2000 levels until 2003, and transpacific not until 2005.

Source: Flight International