Submit Press release  eTN Team ·  Advertising  ·  eTN Awards  - Worldtourism Events    

Airline Industry

Meltdown 101: Is airline slump leveling off?

AP  Apr 23, 2009

In the past week, the largest US airlines have reported staggering losses and a sharp downturn in traffic during the first quarter. But some airline executives think the worst might be over.

No airline chieftain was bold enough to say a recovery in travel has started. But executives at Delta, American and Continental all suggested — with an unmistakable air of hope — that at least traffic levels aren't collapsing the way they did earlier this year.

Here are some questions and answers about the state of airline travel amid a slumping economy.

Q: How badly did traffic fall in the first quarter, and where's it going?

A: It went from bad in January to ugly by March.

Take Continental, for example. There's a key measurement in the airline business called RASM, revenue per available seat mile — the amount of revenue an airline generates, relative to its capacity.

Continental's RASM slid 4.8 percent in January, 11.5 percent in February and about 20 percent in March. The April numbers won't be good, either — down 13 to 15 percent, the company said Wednesday.

Continental said that it expects to fill about the same percentage of seats in the second quarter that it did a year ago. But if fares fall, so does revenue, and that's what is happening now. On trans-Atlantic flights, Continental's average ticket is down 35 percent from 2008. (Remember all those fare hikes and fuel surcharges a year ago?)

Continental executives were optimistic, to a point.

"Things seem to feel better today than they did 45 days ago," said Chairman and CEO Lawrence Kellner, "but I'm not sure if that's simply because the pace of the decline is slowing or because things are actually stabilizing."

The numbers were different at other airlines, but the trends were similar.

"Things aren't good, but they are not getting worse," said Ed Bastian, president of Delta Air Lines Inc., the world's largest airline operator.

Officials at American, a unit of AMR Corp., said they saw a bump in last-minute, high-fare travel in late March. But Chief Financial Officer Thomas Horton said it was too early to tell whether it was a trend.

Q: If traffic is down, which travelers are staying home?

A: Mostly business travelers, and that's bad for airlines. Business travelers fly a lot, and they tend to buy their tickets closer to the day they'll fly, which means they generally pay more than families who make vacation plans far in advance.

Q: When will business travel return to its old levels?

A: When there are signs that the recession is lifting.

Airline executives said travel is one of the first things companies cut when the economy slows, and it will return when companies feel more confident about spending.

"Corporate travel is down pretty significantly, and that's discouraging," said Gerard Arpey, chairman and CEO of AMR.

But, Arpey said, companies "need to go to conventions. They need to go out and drum up business. And I think if the economy begins to pick up steam ... that will bode well for our traffic in the back half of this year."

Q: Will airlines cut more flights?

A: Stay tuned. Even though airlines have cut capacity this year — some by double-digit percentages — traffic has fallen even more sharply.

Continental executives said either traffic will have to grow or airlines must further reduce supply to meet the new and lower demand.

Michael Boyd, an aviation consultant in Colorado, predicted that airlines will lop another 8 to 9 percent off capacity this fall, "and that will drive fares back up."

Q: How is this affecting the airlines' bottom line?

A: All the large U.S. airlines lost money in the first quarter even though fuel was a bargain compared with last year. That's because the downturn in traffic and revenue swamped the savings from fuel.

But most analysts think the airlines will do better as the year goes along.

According to surveys by Thomson Reuters, analysts expect Delta, Continental and Southwest Airlines Co. to earn a profit for the full year and expect AMR and UAL to lose money.

Q: Will the airlines charge me more fees?

A: It looks that way. Delta this week added a $50 fee for most passengers who want to check a second bag on international flights starting July 1 — the first two bags used to be free. Delta hopes to raise $100 million a year with the new fee.

Other airlines said they were studying Delta's move — and most of them already charge bag fees on domestic flights.

Meltdown 101: Is airline slump leveling off?
Photograph by Steve Morris/Air TeamImages

Premium Partners