Airlines recovering as fares improve

  • It’s not exactly happy days are here again time, but better results are being forecast for the international air transport industry. The International Air Transport Association (IATA) is now predicting the industry will make a small profit this year of $2.5 billion.
  • That’s quite a turnaround from airline losses of $9.5 billion recorded in 2009. It’s just a drop in the ocean of the $63.35 billion losses incurred by just the 6 major US carriers between 2001 and 2009, as reported by the US Transportation Department. So there’s a long way to go, but a start has been made.
  • And today Aer Lingus reported that operating losses for the first half of the year fell from €93 million to €19 million. This was an excellent performance particularly in light of the major disruption caused by the ash cloud in April and May. Aer Lingus Chief Executive, Christoph Mueller, expects an operating performance for the full year of not less than break-even.

    Aer Lingus – Flying back to profitability
  • But back to global air transport, the progress toward profitability varies from region to region around the world. Asia Pacific, North America, and Latin America are showing the strongest recovery, while Europe lags this, and European airlines are expected to lose $2.8 billion this year, according to IATA.
  • The principal reasons for the move towards recovery include improved economic conditions globally, reduction in capacity leading to increased load factors, with fares being reported up by as much as 18% this summer compared to a year ago, and more stability in fuel prices.
  • But this is not all good news for consumers, as airlines are pulling back on deeply discounted fares, and cheap fares will become increasingly difficult to find. Airlines too, have become hooked on “fees” and a new study shows that worldwide carriers took in $13.5 billion from fees in 2009, a 43% jump in just one year. The company which carried out this study also predict that fees are going to stick around and become even more pervasive.
  • IATA is predicting a return on invested capital of 2.8% this year, less than half peak levels and still far from reaching the industry’s cost of capital. Still, investors are taking a positive outlook on airline financial prospects with share prices up 7% so far this year.
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