Airline profits for overseas flying dries up

[Secret Squirrel]

http://www.thestreet.com/_yahoo/new...32419.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA

Now they are saying domestic will have the higher yield because all the airlines have thrown so much capacity at overseas markets.

 

[StopNTSing]

That plus the rise of all the Middle Eastern carriers that are making a major push into the long-haul international market, makes me wonder just how lucrative it will be going forward. Of course I only have this opinion since I work for a domestic carrier, so flame away! :nuts::bomb:

 

[jonjuan]

"European currencies also cratering..." (Art Cashin, CNBC)
Economic growth is weakening globally: Data abound indicating weakening of global economic growth. England is moving toward recession, Germany on August 14th is expected to post a negative reading for Q2 GDP, Japan is moving toward recession, and even China is showing signs of slowing.
http://www.iata.org/pressroom/pr/2008-08-04-01.htm

Date: 04 August 2008

Freight Volumes Contract and Passenger Growth Hits Five-Year Low
Geneva - The International Air Transport Association (IATA) released international traffic data for June that showed a continued slowing of demand growth for air transport. Cargo contracted by 0.8% compared to June 2007. Passenger demand growth fell to 3.8%, the lowest level since 2003. Passenger load factors dropped to 77.6%, 1.2 percentage points below the 78.8% recorded for June 2007.
“The global economic turbulence clearly shows in the 0.8% drop in freight volumes compared to last year. Although the passenger demand grew by 3.8%, this is the slowest growth that we have seen since the industry was hit by the SARS crisis in 2003. With consumer and business confidence falling and sky-high oil prices, the situation will get a lot worse,” said Giovanni Bisignani, Director General and CEO of IATA.
Passenger

• Global passenger traffic growth of 3.8% is well below the 5.4% recorded year-to-date.
• Capacity growth of 5.5% outstripped demand, pushing the passenger load factor down to 77.6%
• North American airlines saw demand growth drop to 4.4% (sharply down from the 8.2% growth recorded in May). Domestic traffic in the US contracted by almost 4%.
• European airlines saw demand drop to 2.1% (compared to 4.1% in May). Declines in business confidence and industrial production in key European economies may well drive this further down.
• Asia Pacific airlines saw their international passenger traffic growth fall to 3.2% in June from 4.5% in May, influenced by weakening long haul destination economies and inflation concerns.
• Middle Eastern carriers saw their traffic growth slow to 9.6% June from 12.8% in May. This is sharply down from the 18.1% recorded in June 2007.
• Latin American carriers turned in the strongest performance with 12.5% growth. Strong commodity-driven economic growth in Latin America is the driving force.

Cargo

• International freight traffic declined -0.8% in June. This is the first decline seen since May 2005 and follows several months of falling manufacturing sector confidence indicators.
• Asia Pacific airlines led the contraction with a -4.8% year-on-year decline for June traffic.
• Latin American airlines recorded the largest contraction (12.7%) as the region’s cargo sector continues to re-structure its capacity.
• European carriers saw freight demand growth fall to 0.7% in June from 1.4% in May.
• North American carriers also saw freight demand growth slow to 4.0% in June from 4.6% in May.
• Middle Eastern carriers delivered the strongest performance with 12.1% growth (up slightly from the 10.7% recorded in May).
• African airlines recorded a -1.9% year-on-year decline in June.

“The airline sector is in trouble. Losses this year could reach US$6.1 billion, more than wiping out the US$5.6 billion that airlines made in 2007. Falling demand and rising costs are re-shaping the industry,” said Bisignani. “To survive the crisis, urgent action is needed. Airports and air navigation service providers must come to the table with efficiencies that deliver cost savings. Labour must understand that efficiency is the only path to job security. And governments must stop crazy taxation and give airlines the freedom to merge and consolidate where it makes business sense.”

 

[Andy]

Who could have seen this coming?

http://forums.flightinfo.com/showthread.php?t=110404
http://forums.flightinfo.com/showthread.php?t=113671

I especially like the following exchange from March:

The new aircraft will be the next to go. Look for an order cancellation press release in the future.

Delta's management is being smart in making these cuts early. As demand falls (it is and will get worse), it's far better to not bleed a ton of cash while hoping that load factors increase.
There will likely be fare wars as passenger counts fall. Those flying aggressive schedules will bleed a lot more cash than those who have already reduced schedules.

The airline hiring music is about to grind to a halt, to be followed by furloughs.

From an internal memo:

International expansion
Much of the protection against increased oil prices that we enjoy today is because of your good work over the last three years to transform Delta into a global airline. This summer more than 40 percent of our capacity will be dedicated to international flying where fares more readily cover higher fuel costs. We firmly believe that global expansion, and the network diversity that it provides, is key to our long-term success.

We are in our third consecutive year of record international expansion, including the important additions of Shanghai and Heathrow in the first quarter. Delta’s international growth will continue to be supported by investments in our fleet, including the continued delivery of 22 international-capable 737-700s, 757-200-ETOPS and 777-200LRs through 2009. Because of their importance in achieving our international growth, we have no plans to defer or delay the delivery of these aircraft. While we will make small adjustments to our international plans to ensure we are focused on the most profitable routes, we will still increase international capacity by more than 15 percent in 2008. Any adjustments to international flying will focus on reducing frequencies or eliminating select seasonal routes. For example, Delta will serve Edinburgh this summer from our JFK hub but will not reinstate seasonal flights from Edinburgh to Atlanta.

Yet again Andy, you are wrong.

Bye Bye--General Lee

Yep. Everything's blue skies and there are no problems ahead with international traffic growth.
So what happens to international traffic when domestic feed's reduced?
And I suppose that you don't see any problems in the credit markets either, eh?
Please remain blissfully ignorant; you have a reputation to uphold.

GL, looks like a big 'ol crow is on the menu for your dinner tonight.

 

[Superpilot92]

GL, looks like a big 'ol crow is on the menu for your dinner tonight.

How so? When did DAL defer new aircraft deliveries?

 

[Tanker Clown]

This article is obviously some sort of lampoon. The Genital promised that international routes were where the money/growth was. He's always right. He's the Cliff Claven of Flightinfo. Moderators: Please delete this thread. Especially the facts coming from independant news sources.

 

[Andy]

How so? When did DAL defer new aircraft deliveries?

GL stated that DAL was going to continue to grow internationally. If they do take that course of action, they'll grow right into bankruptcy.
As for the cancellations, give it a little time. Are you suggesting that DAL is going to continue to take delivery of 767s and 777s in this environment? Again, that's financial suicide.

 

[Superpilot92]

GL stated that DAL was going to continue to grow internationally. If they do take that course of action, they'll grow right into bankruptcy.
As for the cancellations, give it a little time. Are you suggesting that DAL is going to continue to take delivery of 767s and 777s in this environment? Again, that's financial suicide.

That's your opinion and many would disagree. Time will tell.

So far you assumptions are wrong. DAL has continued to add International routes and no deliveries have been deferred, in fact they have taken new aircraft and will be receiving the 777's in the next month or two. That combined with the 737's already being delivered and the 787s that NWA will be bringing to the party next year there will be quite the aircraft line up. So why should the General "eat crow tonight"?

 

[PeanuckleCRJ]

GL stated that DAL was going to continue to grow internationally. If they do take that course of action, they'll grow right into bankruptcy.
As for the cancellations, give it a little time. Are you suggesting that DAL is going to continue to take delivery of 767s and 777s in this environment? Again, that's financial suicide.

We're taking 767's? News to me....


The only plane's we're taking delivery of are a few 737-700's and the ULR 777's.

 

[FDJ2]

From DAL's 2Q report:

Delta continued to deliver strong revenue growth as a result of its international network investment, cargo and ancillary business revenue growth, and aggressive yield management. June 2008 quarter revenue improved 10%, or almost $500 million, year over year. Based on the most recently available ATA data, Delta achieved a revenue premium to the industry – its consolidated length of haul adjusted passenger unit revenue (PRASM) was 102% of industry average PRASM (excluding Delta) for the first five months of the year. Delta reached its goal of closing the PRASM gap to the industry a year ahead of schedule.

 

[Poahi]

It's the intersection of KoolAid and denial...

 

[upndsky]

Delta's international push is into niche markets, where there's little if any direct flights to the US. Places like Malaga, Lyon, Nice, Bucharest, Amman. Expect to see other "exotic" destinations in the future. I just did Dakar and Cape Town and the flights were completely full.

International growth for DL is not on the JFK-LHRs or JFK-CDGs. 1) Those routes are already saturated. 2) We don't have the right aircraft for it. Instead, we'd rather use the 767s and 757s for those smaller markets I mentioned. There's still a lot of world to be covered.

 

[RJAA]

Bucharest is a proven failure. Nice job. So is Vienna. Nice is a question of how much longer with fuel price the way it is and the weak dollar.

 

[eatme]

Delta's international push is into niche markets, where there's little if any direct flights to the US. Places like Malaga, Lyon, Nice, Bucharest, Amman. Expect to see other "exotic" destinations in the future. I just did Dakar and Cape Town and the flights were completely full.

Well we all know that full flights are the harbinger of profitablity and good times..cough. Their are plenty of "exotic" destinations to fly to, Kabul, Tsibilisi, Sichuan, Myanmar...

 

[upndsky]

Not all destinations are going to be a success. You're right, Bucharest isn't hitting the margins (I don't know about Vienna). But other markets are. There's always going to be some trial and error. Even Southwest has to adjust its routes and schedules because it overestimated (gasp!) the demand for a certain market.

And a full flight internationally is different than a full flight domestic, where they give a seat away for $100 a pop.