Fourth quarter results from Europe's major carriers suggest that, though the traumas of 2001 hit the bottom line badly, cost-cutting has been equally dramatic. However, there are still few signs of a convincing recovery.

British Airways and KLM both saw huge losses in the last quarter, netting deficits of $265million and $81 million respectively. Yet both came in at the top end of analyst expectations.

Airline results confirm that business traffic has suffered more than leisure. "Weak demand in the business travel segment still shows no sign of improvement compared with the level prevailing since the end of the third quarter last year," said SAS, unveiling a loss of $169 million for the year and predicting further small losses for 2002.

Some encouragement has come from the weekly traffic statistics issued by the Association of European Airlines since the attacks on the USA. These show a gradual pick-up in traffic in the early part of 2002. However, BA chief economist Andrew Sentance warned at the recent Economist Global Airlines conference in London that this did not necessarily signal a return to growth. Once adjustments had been made for the demise of Sabena and Swissair, he said, there were few signs of improvement in January compared with December.

Sentance adds that rising load factors, on their own, are not a sure sign that demand is returning. He points to the large amount of market stimulation that has occurred since 11 September, with airlines trading yields for traffic.

Commerzbank analyst Chris Tarry warned airlines not to pile capacity back into the market when recovery does come. "If too much capacity does go back, it will not be the passenger who blinks first," he says.

Source: Airline Business