Air Transport World

A SLIGHT IMBALANCE.

Airline traffic growth has not kept pace with deliveries of new aircraft. But the downturn is manageable

Well, it happened, just like all the Cassandras out there said it would when the current order cycle began three years ago (ATW, 12/96, p. 24). Airlines and leasing companies ordered thousands of new airplanes in the second hail of the decade--more than 2,700 in 1997-98, the most for any two-year period in the history of the jet age--and sure enough the biggest squawk today, during a year of record aircraft deliveries, is that too many airplanes are chasing too few passengers.

American Airlines CEO Don Carty is claiming his rivals are guilty of "abject stupidity" for adding capacity and then cutting fares to fill the seats. Not surprisingly, yields for US carriers have been falling through much of 1999 and, more ominously, load factors have begun to slip as well.

The same holds true in Europe where, with some notable exceptions such as Air France, chastened carriers are telling the skittish investment community that they are scaling back expansion plans and retiring airplanes that might have been expected to stay in service a few years longer.

Referring to the European market, Commerzbank airline analyst Chris Tarry recently declared that the operating environment "is now as tough as it has been for some considerable time." British Airways stock hit a six-year low in late October and analysts are forecasting annual losses for the 2000 and 2001 financial years. This would be a first for BA, which has made money in every year since it was privatized in 1987. Convinced it must overhaul its entire approach to the business, it has announced it will trade its 757s for A318s.

In Asia, Air China recently announced it is leasing out three A340-300s because it can't fill them economically. The word on the street is that many more Chinese airline widebodies are available for hire.

And yet the odd thing is that by historical standards the global situation just isn't that bleak. Sure there are pockets of pain here and there, and BA is in one of them, but this after all is an industry that had cumulative operating losses of $3.8 billion between 1990 and 1992. By contrast, ICAO member-state airlines earned a record $16.5 billion from operations last year, and while earnings this year will be significantly lower, this is not quite the debacle it is being painted. As Pegasus Aviation Senior VP-Finance Robert Brown observed to ATW, "it's important to remember that we have an industry which is actually doing pretty well. Only the fact we've recently had such strength makes it look like we're having weakness today. …

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