"Carriers balance supply and returning demand"

Tuesday, May 28, 2002

Carriers balance supply and returning demand 
By Roger Bray 
United Kingdom - The London Financial Times

 
The worst inconveniences forced on travellers in the turmoil which
followed September 11 have eased but there may be more frustration to
come. As airlines struggle to limit the damage caused by terrorism and
the economic downturn, seats and discounted fares are likely to become
harder to get.

The key to the planning of trips and travel budgets will be the extent
to which carriers balance supply and returning demand. Will carriers
resist the temptation to restore too much capacity, too quickly?

Certainly travellers now have a greater overall choice of flights than
in the final quarter of last year as airlines restore services which
were suspended as traffic slumped. For example, Washington National,
where flights had been restricted because of its proximity to key
government buildings, has been cleared for normal operations again -
though services to and from the airport remain well below their old
levels.

Statistics for the first quarter of this year show that the pick up has
been mostly on US domestic routes, where services were pruned most
drastically.

Carriers in other regions cut fewer seats and appear to have been less
eager to restore them.

Immediately after the attacks US airlines cut their capacity, measured
as available seat kilometres, by around 20 per cent. By March, about
half of the domestic flights suspended in the US had been reinstated.
The country's Air Transport Association reports that in March, capacity
on its members' domestic routes was 10.2 per cent lower than in the same
month last year. It was down 17.5 per cent on the North Atlantic and
25.7 per cent on routes to the Pacific. Capacity to Latin America,
however, had hardly fallen at all.

With the switch to summer schedules, some US airline executives feel too
many seats are being restored. One notes "Off the record, we wish
everyone hadn't been in such a rush to put it back". But statistics from
American Express suggest that the average increase between the second
and third quarters have been fairly modest.

In Europe, a new airline called Swiss has risen from the ashes of
Swissair, but some of its predecessor's less attractive routes from
Zurich have been jettisoned in the process. Short haul services dropped
include those to St Petersburg and Tbilisi and nine long haul
destinations have gone, among them Shanghai, Atlanta, San Francisco,
Santiago, Ho Chi Minh City and Beirut.

Worldwide, nearly one third of the capacity formerly offered by Swissair
and Crossair, on which the new operation is based, has been axed.

Business travellers in Belgium have seen a revival of services from
Brussels since the demise of Sabena but the range of services and
frequencies remains much narrower than it was. SN Brussels Airlines, for
example, has taken up 36 routes to European cities and has started
flying to Africa centres such as Entebbe, Nairobi, Monrovia Kigali,
Dakar, Banjul, Conakry and Monrovia.

Henri Losseau, financial manager in the Benelux countries for travel
management company Carlson Wagonlit says the loss of African routes has
been one of the biggest frustrations for business travellers. They, and
those flying to smaller airports in Europe had suffered most
inconvenience.

"Low cost carriers, particularly Ryanair and Virgin Express, have gained
market share and the airlines servicing the four major airports of
Paris, Frankfurt, Amsterdam and London Heathrow have picked up traffic
as a result of the collapse of Sabena."

Across Europe airlines have restored significant capacity on
intra-regional routes. In October it fell by 9.7 per cent. By early
April it was down only 1.6 per cent. But on the North Atlantic and on
routes to the east Asia and Australasia the picture was different, with
respective cuts deepening from 18.2 per cent and 8.3 per cent to 20.1
per cent and 8.9 per cent. Though it made heavy cuts in the number of
seats on offer across the North Atlantic, Air France's overall capacity
changed little. British Airways, in contrast, offered 15 per cent fewer
seat kilometres in October than in the equivalent month of 2000 but only
11.2 per cent fewer in March.

Global figures for international scheduled services operated by members
of the International Air Transport Association (Iata) show surprisingly
little change since October. Then, capacity was down 9 per cent on the
same month of 2000. In January it was 11 per cent lower and in February
9.8 per cent down.

What effect will all this have on fares? The Air Transport Association
reports US domestic first class fares paid by customers were down by an
average of 11.4 per cent in February and those in economy by 14.3 per
cent. That was already better than the 15.2 per cent and 16.4 per cent
recorded in January and suggests prices are creeping up as traffic
returns.

Iata forecasts that available seat kilometres will be 3.7 per cent below
last year's total but that business will improve by 2.5 per cent. A
spokesman says: "Given that unit costs will rise because of low capacity
and assuming that yield (in this case a measurement of revenue per tonne
kilometre flown) is broadly the same as last year, members would halve
their collective loss to $6bn on international scheduled routes." This
also suggests a little less downward pressure on fares.

Such assumptions could be knocked for six, however, by a rush of
over-optimism by airlines, causing them to take the brakes off capacity
increases, or if another international catastrophe deters the return of
traffic.

Meanwhile there is no doubt that the crisis has concentrated airline
minds on finding new ways of keeping business customers sweet. British
Airways decision to scrap Saturday night stay and advance purchase
restrictions on domestic and - it was expected - European routes is one
example. Another is the shake up of intra-Scandinavian fares by SAS,
which makes day returns cheaper depending on how far before departure
passengers book.


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