Industry Group Reverses Forecast, Predicts US$1.5 Billion Loss For Airlines

World Airline News, August 3, 2001

U.S. Carriers Being Hit Hard In Both Yield And Load Factor

Continuing declines in both pricing and traffic figures for U.S. airlines have prompted the Air Transport Association (ATA) to dramatically change its earlier forecasts and predict a loss for the industry this year.

The ATA had earlier predicted a US$1.5 billion profit for the year, but has revised this estimate to a loss of about the same amount. ATA Director of Economic and Market Research John Heimlich told World Airline News that the main culprit for the US$3 billion swing in the ATA's estimate was two consecutive months of unit revenue decline in May and June. The third quarter also looks grim in this regard.

Heimlich said that the unit revenue decline has been caused by decreases in both yield and load factor in this period. In May, yield was down 6.9 percent from the previous year's figures, and was down 8.3 percent in June. Both months were about three points down in load factor.

ATA is tentatively forecasting that the industry will rebound in the second quarter of 2002. There will be a lag between the general economic recovery and a positive impact in the airline industry, Heimlich said, as it will take some time for business traffic to be restored.

In general, leisure traffic has been holding up well, Heimlich said, while business traffic has been hit hard. However, most analysts agree that more business travellers have been seeking reduced fare leisure tickets.

While domestic traffic has been down in every month of this year except January, international traffic has increased in every month so far, Heimlich said. International traffic growth has been "fairly healthy" at 3-4 percent, he said. ATA does not collect international yield figures for the U.S. airlines, but Heimlich believes yield is flat or a little down from last year.

Heimlich said that the U.S. industry will be hit a little harder than carriers from other regions, on a year-to-year basis. European airlines are reporting a slight traffic increase after a flat period, and Pacific region carriers are also reporting a slight rise.

U.S. carriers are reacting to the current economic situation with "mostly traditional cost-cutting measures," Heimlich said. These have included capacity trimming or capacity freezes, "mild layoffs," and a small amount of service cutting, he said.

The capacity reductions have been achieved by slowing deliveries, not exercising options on aircraft, and speeding up retirement schedules.

The ATA earlier predicted that in spite of huge cost increases this year, partly due to recent contract negotiations, airlines will not be able to increase ticket prices due to soft demand. >TK