Air Transport World

World airline traffic grows, but profits fall. (23rd Annual Market Development Report)

World airline traffic grows, but profits fall

The year just past was an interesting one for airlines around the world; not a great year, not a bad year, just interesting.

If there was a trend in 1985 it was a shift in traffic growth toward the United States airlines, and a shift in profits toward the large European carriers. In relation to preliminary International Civil Aviation Organization figures U.S. carrier share of the world passenger markets grew from 39.7% in 1984 to over 40% last year. But U.S. airline operating profits dropped from 41.5% in 1984 to only 36.8% last year.

Passenger traffic was up in most areas. Freight traffic was down, especially for airlines in the United States, both domestically and in international services.

Financially, 1985 was, again, interesting. There was no surge of profits as in 1984 when U.S. majors and large European airlines led the industry to record earnings, but there were still enough to make 1985 the second best year. There was enough confidence left over from 1984 to make it a great year for the big-three airplane makers who sold 599 new transports more than they had in many years.

Total revenue was up for the industry, but yields slipped for many airlines as competition drove fares down in many areas. Airline deregulation is a fact of life in the U.S. Lesser forms of the concept are seeping into numerous other important parts of the world. European carriers are going through a "liberalization' exercise. In the Pacific Australia is formally examining the pros and cons of the issue, Japan is expanding multi-carrier international operations, and fares and rates are floating in at least a semi-free market atmosphere in many areas. In Canada deregulation is already beyond the talking stage.

Public opinion appears to be consistent in most sectors that deregulation lowers fares and rates, and airline yields are still under considerable pressure.

In a blessing of sorts for airlines everywhere kerosene prices continued to follow the lead of crude oil prices pushing airline fuel below 80^ per gallon here in the U.S. for the first time in this decade. Airline savings were in the billions of dollars, but more fuel was purchased as capacity increased, and expenses generally rose more than revenues on a worldwide basis, producing the drop in operating profits.

ICAO RPKs up 8.1%

ICAO preliminary figures show that the world airline industry, not including Aeroflot's domestic operation, generated $112 billion in operating revenue last year, 6.7% more than they produced in 1984. But, ICAO fears that when final 1985 tallies are made they will show operating expenses climbing 8% over 1984 to $108 billion. This will drop world airline operating profit 21.6% from $5.1 billion in 1984 to $4.0 billion.

In terms of scheduled traffic growth ICAO preliminary figures show 1985 to be a better growth year than 1984 in passenger business, but a down year in freight, nothing like the freight boom of 1984. ICAO estimates that RPKs will be up 8.1% to 1.373 trillion when final 1985 figures are tallied, better than the 7% growth enjoyed in 1984. Passenger boardings should reach 892 million, ICAO estimates, 6% more than in 1984 when boardings were up 5.8%.

ICAO freight up only 1%

But freight traffic suffered a slump in 1985 with FTKs increasing only 1% over 1984. Freight traffic was up 13% in 1984 and 10.8% in 1983. ICAO preliminary figures show that the freight slump will drag total 1985 airline traffic growth down below 1984's growth rate, despite the improved passenger growth. ICAO's total scheduled revenue tonne-kilometers growth for 1985 is only 6.2% compared with 8.5% in 1984. These 1985 ICAO figures will be adjusted later in the year as additional carriers report, but they usually give an indication of how the entire airline industry did.

IATA total RPKs up 7%

The year broken down into smaller segments of the industry gives similar mixed results. The International Air Transport Association, whose membership has swelled to 143, has not been excessively enthusiastic about 1985 results. …

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