Airline Groups Offer Sober Outlook

The outlook for the rest of 2008 seems bleak for the airlines and travel industry, and 2009 doesn’t seem much better. While many agents hope that leisure travel sales will remain strong, the airlines face tough challenges— including high fuel costs.

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For U.S. airlines, projections for the remainder of the year—and 2009 as well— continue to be bleak

Adding to the concern of agents are promised airline capacity cuts and weaknesses in the economy. Compounding the problems is the multibillion-dollar federal bailout of Wall Street now underway, which falls in the midst of a tough national election cycle.

The airlines will lose $5.2 billion in 2008, in part due to slowing demand and high oil costs, according to revised estimates by the International Air Transport Association (IATA). “The situation remains bleak. The toxic combination of high oil prices and falling demand continues to poison the industry’s profitability,” says Giovanni Bisignani, IATA’s director general and CEO.

While some regions will show small profits, IATA says, the negative impact of the industry crisis is universal. North American carriers are expected to post losses of $5 billion in 2008, making them the hardest hit by the industry crisis.

IATA, offering a global perspective, also believes that industry traffic data shows a continued slowing of demand. July year-on-year passenger demand growth fell to 1.9 percent. Capacity increased by double that, 3.8 percent, indicating that service cuts are not keeping pace with the fall in demand.

IATA also noted a surprise drop in July of 0.5 percent in passenger demand by Asia-Pacific carriers. While partly attributable to a change in Chinese visa requirements, IATA said it showed that “economic weakness is spreading to previously robust economies.”

Looking forward to 2009, IATA said it expected the “difficult business environment” to continue. “Most economies are expected to deliver even weaker economic growth next year, which will negatively impact air travel and freight.” The 2009 fuel bill is expected to rise, as hedging offers less protection, to $223 billion—comprising 40 percent of operating expenses.

In its 2009 Business Travel Market Insights, American Express offers a different perspective. Key air trends cited in the report include energy cost volatility, airline consolidation, higher airline costs, ticketing restrictions, airline fee proliferation and capacity cuts. Tighter controls over corporate spending are also noted.

Business Travel Woes

Weighing in with another perspective is the Association of Corporate Travel Executives (ACTE), which surveyed 131 members on how their corporations will fund business travel in 2009; two of the response categories clearly indicate “less spending” and “less frequent travel.”

“Thirty-six percent said they’d be spending more on business travel next year, while 33 percent indicated they’d be spending less and 31 percent said they’d be spending the same,” ACTE reported.

ACTE said the number-one cause of the cutbacks in travel spending, according to 47 percent of the survey’s respondents, is a combination of economic uncertainty and rising fuel costs. ACTE said 31 percent are cutting back on travel straight across the board while 39 percent are cutting back on internal meetings and 16 percent are reducing international travel.

For the Air Transport Association (ATA), the outlook is not much better. The ATA told Congress that more than 14,000 airline jobs have been cut so far this year and that by cutting capacity, scores of communities stand to lose all commercial air service by early 2009. The airline industry is “burning through cash at unprecedented rates” and barely “surviving from month to month” the ATA says.

Airlines are on the “brink of financial disaster and, some would say, about to implode,” the ATA warned Congress. “If Congress does not turn things around very soon, the impact on the country’s economy will be even worse.” Analysts, the ATA said, are predicting that a 20 percent reduction in capacity may not be enough to save the industry. “Based on the communities that stand to lose service, airline hubs will be decimated, tens of thousands more jobs will be eliminated and tourist destinations will be devastated by huge cuts in the number of flights.”

Few envision a quick fix for the airlines’ problems even if a consensus can be reached on what the fix might be.

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