JIN-509 -- A turbulent year ahead for the airline industry

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J@pan Inc Newsletter
The 'JIN' J@pan Inc Newsletter
A weekly opinion piece on social, economic and political trends in Japan.
Issue No. 509 Friday May 10, 2009, Tokyo

It must be frustrating for airline industry executives – looking at
the price of crude oil drop so significantly only to see consumers too
scared to drive to the shops, let alone to their nearest international
airport. No-one is buying an extra pint of milk so they sure aren’t
about to pack up the kids and head off on the odd European holiday.

This week, global airline trade association IATA released its
forecast, predicting that airlines will lose $9 billion this year.
This is double the amount predicted in March due to much bigger losses
than expected occurring during the first three months of the year.

It’s going to be the second straight year of losses for a lot of
airlines, including world leaders such as British Airways and Air

While it is true there are fewer people willing to head too far abroad
for their holidays, it is the drop in the number of business travelers
that is really hurting the airlines.

According to a Financial Times report, the biggest loses were in the
Asia-Pacific region. $3.3 billion. The reason for this, the FT said,
was due to airlines being hit by both a huge decline in the demand for
travel from business passengers as well as an “unprecedented drop in
air cargo volumes.” While warehouse inventories remain full, the
losses will continue across Asia. And while the salespeople, who are
supposed to be selling the inventories, are stuck back at HQ, their
bosses aren’t buying tickets - for the salespeople or for themselves
for that matter. Business travel is important for the airlines as this
is where these companies make the bulk of their profits.

In its report, IATA forecast that air cargo would decline on average
by 17 percent while passenger numbers would decline by 8 percent. And
there would be little relief in 2010, the association, predicted.
Also expected is a fall in revenues of 15 percent ($80 billion) to
$448 billion. While a drop in fuel costs of about $59 billion has been
forecast for 2009, this is still no match for the massive drop in

We’ve seen cut-price airfares and special business class deals
advertised in all kinds of media – not in a very long time have we
seen a better time to be booking flights. And yet many don’t have the
stomach for flight - any excess cash lying around is being pumped into
debt by households the world over.

Of course there have been cuts in capacity, but still, excessive
capacity remains. Capacity was growing in Asia, when the downturn hit,
on the back of the healthy demand at the time. Capacity is now being
scaled back -- but not fast enough. Ticket prices will continue to be
cut – which is good news for passengers (well those still flying). But
for the airlines themselves, 2009 is going to be a turbulent year.

Michael Condon

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