Aviation Airlines ‘confidence is back

The airline industry has reported a
further improvement of financial performance over the second quarter of 2010
and expects profitability to rise again throughout the rest of the year.

A new report by the International
Air Transport Association indicated that 70 per cent of those polled had
reported improved profits. The association has revised its 2010 industry
financial performance forecast upwards significantly, from an initial US$2.8 billion
loss to a profit of $2.5 billion.

“Stronger demand on the back of
improving economic performance in most regions has been the key driver of
improved performance. Higher load factors have helped yields, driving revenue
growth and improving the bottom line.

“Some airlines still report softer
profitability, driven in some cases by increased competition on key routes, and
in other cases by shocks such as the ash cloud airspace closures in Europe
during April. Exchange rate shifts, e.g. EUR vs USD have also hurt some
airlines while helping others,” noted the survey.

Respondents were asked a series of
questions, with responses indicated by marking from 1-100 where 0 is negative,
50 no change and 100 the most positive. A weighted average puts the
association’s profitability indicator at 73.1, a result similar to that reported
at about the same time in 2007.

Europe continues to report mixed
results with 60 per cent showing improved profits but 30 per cent declining in
profitability.

Demand growth and yield stability

Early 2010’s sharp improvement in
cargo and passenger demand continued from April-June, according to 80 per cent
of respondents to the association’s quarterly survey. Traffic growth was reported
by 84 per cent of respondents and 80 per cent expect an increase in growth for
the next twelve months.

“Much of the recent strong recovery
in cargo traffic has been driven by re-stocking activity as economies emerge
from recession. The growing proportion of respondents in the ‘no-change’
category may indicate that this inventory cycle is coming to a close.

“Cargo traffic growth rates may
moderate somewhat over the year ahead – further growth in freight traffic will
be dependent on renewed trade activity beyond re-stocking,” read the report.

Half of those surveyed reported
passenger yield increases in the last quarter, compared to a third from the
previous survey. Business class was improving but the report noted that average
fares for international markets remained 10 per cent to 15 per cent lower than
pre-recession levels. Some airlines were also unsure as to whether the market
was yet strong enough to support fare increases, but increased demand meant
that 70 per cent of airlines anticipated a yield increase going forward. Cargo
yields have also achieved a weighted score of 72 with expectations for the next
year averaging at 70.

“The proportion of respondents
indicating that ‘no-change’ in cargo yields is likely over the year ahead has grown
from just over a third last survey to more than half in July. In addition to
reflecting the effects of increasing cargo capacity, it is possible that
pick-up concerns over whether the impetus given to yields from restocking
activity early in the recovery will continue as this phase of the inventory
cycle comes to a close,” said the International Air Transport Association.

Employment

Hiring levels vary greatly
worldwide, with two thirds of airlines in the United States expanding their
staff levels, compared to 30 per cent in Europe. The report noted that this was
largely a reflection of the traffic recovery between regions. During the next
12 months, according to respondents, it is likely that further increases in
employment levels by the airline industry would continue. The weighted average
is 63.5 on a scale of 1-100.

“The drivers of this outlook remain
the continued recovery of traffic and the return to market expansion through
the establishment of new services. There has been a slight increase the proportion
of respondents indicating ‘no-change’ in staffing levels over the year ahead as
they seek further productivity increases driven by the economies of scale from
expanding operations.

BIZairlinesSTORY

Economic recovery has brought stronger demand to the airline industry.
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