There are few signs of encouragement in airline carrier figures although the North American market in particular looks soft, write David Field and Colin Baker

Although traffic in Europe and Asia-Pacific traffic figures appear to be showing signs of recovery from last year's woes, the North American market continues to splutter.

US major traffic gains are at best minimal so far this year, with domestic passenger numbers falling almost 12% over the first six months of the year for the 15 majors within the Air Transport Association (ATA).

Overall US boardings were down 9%, while traffic in terms of revenue passenger kilometres, fell by close to 10% over the half. International boardings fell 7.6% with the transatlantic down 12% and transpacific diving by 13.5%, while markets to Latin America traffic remained flat. Deutsche Bank Securities analyst Susan Donofrio believes that "a lack of fare increases, growing low-fare competition and uncertainty surrounding airport security details are the three biggest factors working against the industry".

Taken as a whole, system capacity cutbacks of 11.4% over the first six months had little effect. With system wide traffic down by almost as much, the cuts ultimately produced only a limited load factor improvement of 1.2 percentage points to 72.3%, according to the ATA (see table page 70). The outlook is hardly rosy.

Analyst Reno Bianchi of Salomon Smith Barney says the months of favourable comparisons are gone: "The easy sequential gains stemming from recouping lost traffic are basically over." Bianchi adds that the June trend of unit revenues falling by 9.6% year-on-year versus a 7.6% decline in May suggests that "capacity discipline may be slipping".

Improvement, he believes, "is contingent on a more favourable pricing environment, to date an extremely elusive target". Efforts to raise fares have failed four times since winter and recent pricing cuts make it unlikely that revenues will increase even in the busy summer season. ATA chief economist David Swierenga says: "Carriers have come to the conclusion that low prices will generate the biggest volume, and that combination is going to give you the best revenue picture".

European hope

In Europe, figures from the Association of European Airlines (AEA) suggest that traffic volumes continue to be stuck around 10% below last year's levels. British Airways, which is the most exposed of the major airlines to the transatlantic, says: "An already soft market was further affected in June by air traffic control disruption, falling confidence in financial markets, two public holidays and the World Cup keeping many people at home." It adds that the overall market "continues to be soft". However, BA is just one of many European carriers which expects to see its traffic figures benefit from a new more flexible - and cheaper - fare structure.

SAS, another airline which is restructuring its short-haul operations, reports that the first half of 2002 has seen "capacity utilisation improved beyond expectations" and that traffic has now returned to the admittedly weak levels of mid-2001.

Alliance partner Lufthansa encouragingly reported "signs of recovery" in its first half-year traffic. "Although passenger numbers remained below the prior-year level, the shortfall was not as pronounced as in the first quarter of 2002."

AEA figures show that the North Atlantic market continues to be hardest hit, down by an annual rate of around 15% for the half year, a slight improvement from the 20% figure for the start of the year. Far East and European traffic is down by a much smaller 5%. However, load factors are showing the benefits of steep capacity cuts and are almost universally up on last year, albeit by a few points.

Source: Airline Business