Airline Weekly - July 5, 2010
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Airline Weekly - July 5, 2010

The Great Recovery: Mid-year report: Airline markets much healthier this first half than last

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Cover Story

The Great Recovery: Mid-year report: Airline markets much healthier this first half than last

If there’s one word that best describes the first half of 2010, airlines would surely choose “recovery.” Aside from some LCCs enjoying unusually low fuel prices a year ago, few have anything but ugly memories about the first half of 2009. Back then, if the collapse in demand didn’t get you, the H1N1 scare did.

As late as last July, when Airline Weekly ran its 2009 mid-year review, “premium, longhaul, corporate and cargo demand remained extremely weak.” So it’s with great relief that more recent traffic data show a strong y/y rise in all of these categories. Yields are in most cases still below pre-recession peaks, but some of that has to do merely with the fact that oil prices were so high pre-recession that carriers were forced to raise fares and surcharges to compensate. In terms of the spread between yields and fuel prices, at least some carriers see it wider today than during the peak. No wonder IATA now believes the industry will make money this year.

Not that oil prices are cheap these days, but they certainly are stable relative to wild swings seen in recent years. At $77 a barrel, the average for the first six months of the year, most carriers feel more or less comfortable given all the steps they’ve taken to cut supply, boost ancillary revenues, introduce more efficient planes and adopt new labor-saving technology. Indeed, during the first quarter of 2010—an off-peak period for much of the world—nearly 60% of the 50-plus airlines that reported earnings made money at the operating level. And while the list of profit makers was again thick with LCCs and carriers from low-cost regions (LCRs), carriers like Delta, United and Korean Air were also present. Results for the second quarter, due to be published starting later this month, will surely show an even greater percentage making money.

The stronger-than-expected recovery in worldwide demand is also lifting the value of aircraft and encouraging airlines to buy. The first six months of 2010 didn’t see a bonanza of new transactions, but Boeing and Airbus did secure 133 and 117 net new orders, respectively. The biggest buy came from United, which finalized purchases of B787s and A350s first disclosed in late 2009. Virgin Blue bought a bunch of new B737s while Turkish Airlines, Air China, Ethiopian Airlines, Malaysia Airlines and Yemenia all bought at least ten new planes each. So did Emirates, whose blockbuster deal for 32 additional A380s made the most headlines. (431 of 1512 words)

Also Inside this Issue:

The third quarter has arrived, and with it a good measure of optimism about the industry’s short-term future. During the first half of 2010, all regions showed recovery, if some more sharply than others and if some more driven by supply restraint than demand growth. By May, according to IATA figures released last week, international air traffic (if not yet yields) had surpassed pre-recession highs.

Even the largest airline in Europe, the slowest region to recover, sounds rather cheerful. Lufthansa told investors that demand and yields are solidly recovering and that this year should be more profitable than last.

In the U.S., where Q2 earnings presentations begin later this month, Delta made news by selling two of its regional airlines but scrapping plans to swap New York and Washington slots with US Airways.

The Star Alliance has another new member: Greece’s Aegean Airlines. The group now awaits Air India, whose accession is delayed because of IT issues related to its merger with Indian.

If nothing else, Air India has one piece of good news for which to be thankful: A large new state-of-the-art airport terminal is opening in Delhi this month, giving it a new home from which to operate. Given its gross overstaffing and hellish labor relations, however, that alone will not likely be enough to erase billions in losses.

The mighty Google has taken a seat in the airline sector by buying an important industry supplier: ITA Software. The firm helps millions of travelers find cheap fares.

About Airline Weekly

Airline Weekly is a subscriber-supported publication, paid for by readers who want a more interesting, more valuable read about the airline business. Each Monday, Airline Weekly reports who's flying where, new marketing approaches, fleet, finance and key airline and airport data. And, most importantly, Airline Weekly readers enjoy a critical context, insightful analysis and new ideas found nowhere else.

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