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"Airlines see demand take a dip"
Monday, October 10, 2011
Airlines see demand take a dip
By Roger Yu
Airlines, which had eked out modest growth much of the year despite a tepid
global economy, are facing a possible double dip of their own.
They're now reporting lackluster demand, as some nervous companies trim
travel budgets and vacationers pull back.
Aggregate second-quarter airline profits worldwide, except for Europe, fell
year over year for the first time in eight quarters, the International Air
Transport Association (IATA) reports.
"The industry has shifted gears downward," says Tony Tyler, CEO of IATA.
"With business and consumer confidence continuing to slump globally, there
is not a lot of optimism for improved conditions any time soon."
The slowdown was particularly abrupt in August, with passenger demand
falling 1.6% from July, the IATA says. Traffic on U.S. carriers has also
been flat, rising just 1.5% through August, according to the Air Transport
Association, a trade group for U.S. carriers.
American Airlines, whose share price dropped recently amid concerns about
its financial condition, saw its traffic dip 0.4% year-over-year in August,
though it rebounded 1.9% in September. Traffic for Delta Air Lines fell 0.9%
in September. Demand for US Airways, as reflected in revenue, also fell 0.9%
"There probably is a little double dip here," says Wayne Plucker, an
industry analyst at Frost & Sullivan. "Corporations are walking on egg
shells. They're not sure what's coming up next."
A downward adjustment may have been expected after the industry posted a
record net profit of $15.8 billion worldwide last year. The downturn is
comparably mild, Plucker says, and they're more prepared to handle it.
Flights have been cut and fuel prices have stabilized. A USA TODAY analysis
of data provided by OAG, the Official Airline Guide, finds airlines have cut
domestic seats or flights in 39 states for this month from last October.
"This is a much more survivable thing," Plucker says. "But I also don't
foresee fourth-quarter profits to be great."
George Hobica, of Airfarewatchdog.com, says sluggish demand doesn't mean
cheaper fares. With eight of every 10 seats filled on U.S. flights, he
predicts airlines will continue to seek fare increases. "I can't see how
(fares) are not going to go up," he says. "I don't think you should play
chicken with airlines this year."
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