After a good 1995, US airlines are, with some exceptions, moving towards an even better profit picture this year. And well it should be. If not now, one would have to ask: When?

As the year of the 10 per cent ticket-tax boost draws to a close, and as traditional election cycle economic strength begins to slow, airline industry officials are looking ahead at an economy that economists believe is perfectly suited for a recession.

If, that is, it already isn't upon us in what is sometimes termed a 'growth recession', where the economy putters along at low to middling growth. The 2.2 per cent growth rate in the third quarter was slower by two points than when Bill Clinton won the presidency in 1992. The paradox is interesting to mull over - that a sitting president can preside over a stagnant economy and still win re-election based on the notion that the economy is ever expanding.

A less positive point to consider is that consumer confidence, which has never been buoyed by the longest US economic expansion ever, is likely to dwindle in the coming months. For US carriers, this slowing of the economic cycle is disappointing because they have enjoyed the fruits of five year of expansion only in the last two years.

However, most of the majors have put this period of revenue growth and economic security to good use. Few fleet expansions have been put in place, with most orders arising out of a need for replacement rather than a desire for system expansion. And there has been a concerted effort to retire debt, with American Airlines and Northwest Airlines leading the way.

Still, as goes the GDP, so goes the US airline industry's fortunes - especially at this point, when fuel prices are at their highest level in the past six years. This has pushed several Wall Street stock brokers, ever the short-termists, to bet that US carriers are at their peak performance right now. But in six months? 'Watch out,' says one equity analyst.

Mead Jennings

 

Source: Airline Business