The mid-year predictions that the beginning of the winter season would prove a period of reckoning for the airline industry appear to be coming true.
Although oil prices dipped below $100 a barrel in late August, the pressure on the industry remains high as many markets report falling demand. Other factors are at work as well, as the crisis in the banking sector hurts premium demand and has spin-off effects such as the US government bail-out of AIG, the parent of the world's largest aircraft lessor ILFC.
In the US, both leisure and business travel domestically look weak going forward. LECG consultant, Daniel Kasper, says: "Leisure travel is awfully important to US airlines, but with the economy, it's not at all clear that the airlines can continue raising prices. The financial industry meltdown has crimped premium travel." He refers to the collapse of Wall Street giants Lehman Brothers and AIG, and the sale and pending downsizing of Merrill Lynch. "Lehman Brothers alone spent an awful lot of money on premium travel, both domestic and international," he notes.
Since the demise of several carriers in April, no significant US players have gone to the wall, although Midwest and Frontier Airlines are struggling to stay aloft. The same cannot be said of Europe, where Irish and UK-based leisure carriers Futura and XL Airways went bust in early September. Europe is also the stage for renewed consolidation action with Lufthansa taking a major stake in Brussels Airlines, Austrian Airlines up for privatisation and SAS preparing major structural changes which could include finding new backers.
At the global level, IATA says airline losses will nosedive further this year. It is forecasting that the industry will post losses of $5.2 billion in 2008 based on an average crude oil price of $113 per barrel. "The situation remains bleak," says IATA head Giovanni Bisignani. "The toxic combination of high oil prices and falling demand continues to poison the industry's profitability."
The list of carriers going bust in the past year is growing, for a selection visit: flightglobal.com/gonebust
Source: Airline Business
