I know you’re loving every word of my “best of” content. But what I thought you’d really like is some new information. Fellow Boardingarea.com blogger Dan Webb from Things in the Sky has graciously agreed to provide a guest post while I vacation aboard Mariner of the Seas. Dan calls this post “Are We At the Bottom….Yet? Please?” I think it’s fantastic and I know you will too.
This December, the recession will officially turn two years old, and it’s certainly been a rough ride for the airline industry. The first problem was a huge run-up in crude oil prices, which peaked over $140/barrel in July 2008. In response, airlines began slashing capacity, which ended up being a wise move, since oil prices were replaced with the full effects of the recession and financial crisis. The results haven’t been too pretty. The Air Transport Association reported that in September, passenger revenue was down 19% year-over-year.
The big question is, of course, when will this all end?
When one watches the news, it’s pretty easy to become confused. When the Commerce Department reported that third quarter GDP increased 3.5% compared to the second quarter, there were plenty of news reports proclaiming that the recession was over. But when the October unemployment rate came out at 10.2%, worse than expected, negative news stories ensued.
So, where does the airline industry stand? Well, in my humble opinion, I think we’ve just about found the bottom, but we’re moving sideways. I think IATA head Giovanni Bisignani put it best:
It is far too early to call this a recovery. The worst may be over in terms of the fall in demand, but yields continue to be a disaster and costs are rising. The airline industry remains firmly in the red with a fragile business environment.
But, I’d like to run through a few pieces of data as well.
ATA Yield Data
I find the ATA’s monthly data to be useful simply because it’s updated so often. Individual airlines only give their actual yield numbers on a quarterly basis, so this data is useful to get a “pulse” of the industry. This data has actually been looking pretty good, as year-over-year change has stabilized the past couple of months, and for all regions. Hopefully, we will start seeing some positive numbers soon as comparisons will soon be made to weaker 2009 numbers.
Average International Fares
This is data that I look at from IATA, which often has great data. I’d highly recommend heading over to their economics page (www.iata.org/economics), which is always informative.
Anyway, fares have decreased a great deal, which is of course great for us as travelers, but bad for the airlines. But recent data looks encouraging:
So, fares are down, but they’re down less than before. And, well, I guess we have to take that as good news – and that’s been the case with a lot of economic data as late – things are getting worse, but they’re getting worse more slowly!
If airlines can decrease their, well, decreases, that’s good news in terms of demand, but there’s still much progress to be made.
Of course, fuel prices have a huge effect on the industry, and last year fuel actually replaced labor as the biggest expense for the airlines when oil was high. But, oil prices quickly collapsed and dropped over a $100/barrel from past highs, but oil is now testing the $80 level again. The rise in oil prices, or general commodity prices, can actually be a good thing for the airlines in the sense that they can be a leading indicator of a recovery. And that might be one reason oil has gone up. But, after converting the price of oil to Euros, the increases look less dramatic, which makes me think that much of this increase is coming from a depreciating dollar.
Anyway, that’s just some of the interesting data I’ve seen of late. Thanks to Marshall for giving me the opportunity to guest post.