US first quarter results are perhaps the clearest indication so far that the current cycle's downturn might be just around the corner. While there is no need yet for tears, overall revenues are flat compared with the 1998 first quarter and net results are down.

The sobering effect on overall performance is due mainly to the continuing struggles of Trans World Airlines, which looks set to head into a downturn without first having secured its own upturn, and Northwest Airlines. Northwest's costly fight with its pilots might not have been so financially devastating had the strike not coincided with the Asia Pacific economic crisis and severe winter-weather related problems around the airline's Detroit base. The combination of these setbacks has postponed Northwest's recovery longer than might have been anticipated.

More ominous, however, is American's lacklustre performance, even allowing for the pilot sick-out that was staged to coincide with an early-year bank holiday. US Airways' net result was also down, reversing a run of good fortunes since Stephen Wolf set the carrier on its restructured path for growth.

Most worrying trend is the almost uniform drop in yields coupled with costs that are creeping upwards. US inflation took an uncustomary leap in April, fuelled mainly by hikes in household commodities, groceries and gasoline. If oil prices climb generally and excess capacity continues to be pushed into the transatlantic market, costs and yields could be damaged further.

Load factors, however, remain high, illustrating a continued appetite for travel in the USA as well as a willingness by airline chiefs to keep a check on capacity.

Three airlines - Alaska Air Group, Continental Airlines and Southwest Airlines - scored double digit revenue growth. Southwest's overall shining first quarter was capped by a spectacular 16.6% in traffic growth.

North of the border, Air Canada eked out a small net profit, but only because of a $2 million tax credit. Canadian Airlines, meanwhile, had no such curtain to hide behind and posted a hefty loss despite a number of initiatives to improve the company's health.

Better news came from the low-cost carriers on both sides of the border. A year ago the whole sector looked doomed. But those few that managed to make it through are now heading back into profit. In the first quarter, AirTran was back making respectable margins - though not quite those of its ValuJet days. Vanguard broke even and Frontier, although still to report, is hotly tipped to be on its way to profits. North of the border, Alberta-based WestJet is growing strongly and with double digit profit margins.

The US regionals, too remain upbeat. Carriers such as Comair and Midway Airlines have already posted record first quarter results and more are expected as the figures unfold.

Source: Airline Business