Air Transport World


The first (or last) year of the new century promises continued airline prosperity

The new millennium will bring a sixth consecutive year of profitability to the world airline industry as an accelerating Asian upturn helps to offset weakness in other areas of the globe and the soaring fuel prices that dampened financial results in 1999 begin to moderate by mid-year.

This is the consensus of industry and airline executives with whom ATW consulted in the preparation of our annual forecast of what the year ahead will hold. Though there will be pockets of pain, as there were in Europe in particular in 1999, the outlook worldwide is bright as most economies remain healthy.

Can the good times go on forever? Probably not. Are airline managements truly prepared, as they say they are, to maintain profitability when times get bad? An interesting question, and only a recession, which a few pessimistic forecasters are predicting for 2000, will provide the answer.

In the meantime, ATW offers the following predictions for what, depending upon your mathematical bent and the calendar you use, is either the first or last year of the millennium:

* World airline traffic and revenues will continue the upswing that started last year after the falloff in growth rates that began in 1996 and bottomed in 1998 (see tables). Net income will reach $10.5 billion this year, up from $9 billion in 1999, but still will represent a margin of only about 3%.

* In the US, the decline in net profits that began in 1998 will continue as cost increases outpace revenue growth for a second year and capacity rises slightly faster than demand, driving airlines to cut fares to fill seats.

* European carriers will begin to recover by mid-year from the sharp profit drops in 1999 as alliances strengthen, low-fare competition lessens and capacity is reallocated back to Asia from the overserved North Atlantic.

* The upturn in Asia will accelerate, with even Japan and Hong Kong enjoying a modicum of recovery.

* The US and Europe will move closer to a groundbreaking agreement creating a transatlantic common aviation area, but the UK will remain aloof.

* Alliances will continue to churn, but by year end most airlines of any consequence will be members of one grouping or another and the major alliances will be completed.

* Marginal carriers around the world will continue to fail, as many did in 1999, proving once again that starting an airline is not a road to riches. In the US, TWA will seek a merger or alliance agreement with another US carrier following tough fourth and first quarters.

* Efforts to boost premium traffic and increase yields, as British Airways and United Airlines among others are attempting, will falter as travelers rebel against high fares by shifting to low-cost carriers and/or imaginative routings.

* The Internet will become a major force in both distribution and competition, with online sites snagging a significant percentage of bookings, but the plan by United, Delta, Northwest and Continental to offer the "biggest and best" channel will take far longer to accomplish than they anticipate.

* Travel agents will not succumb to the double blow of commission cuts and online competition but will return to their role as travel consultants, charging appropriate fees for their services. Small agencies that are in business primarily for the travel benefits will continue to fail, however.

* ATC problems and attendant delays will worsen in Europe and the US as governments continue to stumble over modernization programs, but growing gridlock will force some action.

Industry associations and securities analysts are generally upbeat about the year ahead.

IATA is predicting an accelerating recovery in Asian economies except for Japan and Hong Kong, an upswing in Africa and the Middle East, and good growth in Australia and New Zealand. It anticipates that a slowdown in the US economy will dampen North Atlantic and Latin America traffic; "however, it is worth noting that the US economy has been confounding the pessimists for a number of years now." European results will continue to be affected by growing low-cost competition.

ICAO is looking for a 5% increase in RPKs this year and is optimistic that costs and capacity will continue to be held in check, leading to healthy profits. …

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