Any analysts keen to spot signs of an end to the boom, will have found much to whet the appetite as the major US airlines posted their third quarter financials. Even before the results were fully out, nervous equity markets had begun to downgrade earnings estimates for next year. It was not so much the quarterly figures themselves that caused the caution, but the accompanying warnings about the outlook for next year.
Admittedly, the quarter was overshadowed by the 18-day strike at Northwest which sent the group piling into the red. It estimates that the strike and its aftermath cost $630 million before tax, and the group now expects to show a loss for the full year.
Trans World Airlines also lapsed back into the red after a double-digit hike in seat costs, heightened by aircraft retirements, offset the work done to raise yields. Even United undershot analyst estimates despite raising profits and picking up windfall traffic from the Northwest strike.
But overall, the industry's underlying performance remained sound. Stripping out the Northwest figures, the industry pushed its operating margin up by more than three points to above 19%. On the same basis, load factors edged up and yields remained static.
But what caught the headlines was the talk of downturn, which surrounded the results. Most airlines took the opportunity to cut growth projections for next year and their chairman pledged not to repeat the bloodletting of the last recession.
President Gerald Greenwald says that United is keeping "a close eye" on the economy and stands "ready to modify our plans". Leo Mullin at Delta concedes that recession looks likely to hit next year, but believes it will be "fairly modest and short" and that there will be no capacity dumping this time around. American too has trimmed its growth forecasts and says it is ready to do more.
The current consensus is that next year's rise in seat capacity will be kept down at no more than 3-4% and could go lower. Even with new capacity entering the fleet, that should be achievable through a cull among the ageing aircraft which have been kept on during the boom. American, for example, announced plans to retire eight old McDonnell Douglas DC-10s and two Boeing 727s. They will make way for some of the 45 new models due for delivery next year under its rolling re-equipment plan with Boeing. TWA hopes to achieve its 4% growth purely through increased fleet utilisation.
There was one more intimation of a slowdown. The index of domestic USairfares showed a dip for economy tickets in September - the first monthly fall to occur this year. Admittedly, it was only for one month and one seat type, but it was a fall nonetheless.
Source: Airline Business
