Modest Growth for U.S. Airline Industry Expected, but Profits will be Down

World Airline News, April 13, 2001

The Air Transport Association (ATA) is predicting modest growth in U.S. airline traffic this year, although significantly reduced from last year's figure. Capacity is also expected to increase, but profits will likely decline.

ATA Chief Economist David Swierenga presented 2001 forecast figures and preliminary estimates of 2000 industry data at the International Air Transport Association's Airline Financial Summit in New York on April 5. "All of the signs point to a slower rate of growth for the U.S. industry," said Swierenga.

According to Swierenga, traffic is expected to increase 3.3 percent for 2001, after an increase of 5.8 percent last year. This assumes a much higher growth compared to GDP than last year - GDP increased 5 percent in 2000, and is expected to increase by only 1.6 percent in 2001.

A chart presented by Swierenga indicates that traffic numbers will be down by between 1 percent and 2 percent in the first quarter of this year, but will register increases of about 3 percent in the second and third quarters and more than 5 percent in the fourth quarter.

"We expect traffic to turn around when we get to the second quarter," Swierenga said. However, he cautioned that a protracted economic recession would cause further declines.

There was a significant decline in profitability in 2000, and for this year Swierenga forecasts "at best, flat profitability," with the possibility of further decline. Market analyst Merrill Lynch is predicting significant decreases in profits for this year (See box above).

Capacity, however, is expected to increase this year if the economy performs as expected. ATA says U.S. fleet capacity is expected to increase by 4.5 percent, after increasing by 3.8 percent in 2000 and 5 percent in 1999. ATA figures show a total of 2,714 orders and options at the end of 2000, comprising 1,165 orders and 1,549 options.

IATA believes the global capacity increase will be about 5 percent, roughly the same as estimates by the major manufacturers.

Other preliminary data for 2000 presented by Swierenga included:

* Net income of US$2.7 billion. Net profit margin of 2.1 percent.

* Domestic cargo growth rate increase of 1.8 percent, international increase of 10.5 percent.

* Load factor of 72.4 percent, compared to 71.1 percent for 1999.

* Labor cost per employee of US$67,000.

* Total cost of delays (passenger time included) nearly US$6 billion.

First Quarter Losses will be Absorbed in Full-Year Profits, Analyst Says

Merrill Lynch is predicting the first quarterly operating loss since 1995 for the major U.S. airlines, but is optimistic that the industry will still post a profit for the year.

Director of Global Securities Research Michael Linenberg said last week that the U.S. industry will likely post a US$630 million operating loss for the first quarter. He said the full year will see an operating profit of about $360 million, and a net profit of $1.5 billion. These figures apply to the top nine U.S. carriers.

In comments to the IATA Airline Financial Summit in New York, Linenberg said that even these small profit figures could send a very positive figures to Wall Street. "If the airlines are able to deliver a profit despite a weakening economy, I think the entire sector will benefit from a favorable reevaluation by the stock market," Linenberg said. >TK United Airlines [UAL]: US Airways [U]: