Just how desperate is the financial situation for the airlines?


In a word, very.  The airline industry has been struggling to find an appropriate balance between capacity, service, fares and costs pretty much since deregulation kicked in and the CAB was retired in the late 70s.  Airlines have launched, folded, merged, declared bankruptcy and otherwise been all over the place in terms of staying in business.  But over the past 18 months things seem to have hit a new low in terms of outlook and performance.  First it was the fuel price bubble of 2008 and now the economic fiasco continues to pressure the carriers.

Here’s a (no so) pretty picture from the Centre for Asia Pacific Aviation that shows just how awful things are right now:

Those numbers are the year-over-year change in passenger loads in the premium cabins on the various routes between January 2008 and January 2009.  The load numbers dropping are scary in their own right, but even more so when considered with the fact that many of the long-haul carriers depend on their premium cabin long-haul service to generate the big bucks they depend on to operate their networks.  Sure, that may not be the right way to build out a business, but that’s the way they are set up, and these load numbers dropping are sure to cause major trouble in the industry.

If that wasn’t enough, the fares are also dropping like a rock in many cases:

IATA estimates the reduction in average fares and fuel surcharges have resulting in revenues from premium passengers falling by at least a quarter in Jan-2009, which is "wreaking significant damage to network airline yields and profitability".

Along with the 28.5% load drops between the US and Oceania, there are two carriers introducing service this year – V Australia has already started and Delta launches service in just a couple month.  With coach fares between Oz and the west coast of the USA now hovering between $500-$700 those flights are not likely to be profitable in the passenger cabin for quite some time.  Add on to that the decreases in cargo requirements due to a slowing economy and the increases in cargo capacity pressuring prices down and the numbers look even less appetizing.

Transatlantic travel is suffering similarly.  There is the 14.5% decrease in loads in the front cabin and fares continuing to remain very depressed in the back.  Want to fly from the west coast to Dublin?  Fares in the low $300s are available right up to the beginning of the peak summer season.  Historically they’d be higher by now.  I just bought a ticket to go to Germany for Easter weekend.  The seat map (not an authoritative source but generally a good approximation tool) suggests that the plane is pretty full.  Historically in such a situation the fares would be running higher and higher at that point.  But only two weeks out I got tickets in the lowest fare bucket available, and at a pretty good price (<$400).

So fares are down. Premium loads are down. Coach loads are stable but not really driving much revenue.  This all spells very bad news for the near future.  On the plus side, it does mean that I can stretch my travel budget even farther.  I’ve been in six countries already this year and have seven more planned already (one will be a repeat).  I just hope enough of the airlines survive this mess so that I still have options available at the other end when things start to pick back up.

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Seth Miller

I'm Seth, also known as the Wandering Aramean. I was bit by the travel bug 30 years ago and there's no sign of a cure. I fly ~200,000 miles annually; these are my stories. You can connect with me on Twitter, Facebook, LinkedIn and .

2 Comments

  1. It’s not just the airlines that are desperate. The Netherlands is scrapping its APD (up to €45) to stimulate demand, and grab back the passengers who have been lost to DUS.

    I wonder whether we’ll see the French/ UK/ Irish APD scrapped too.

  2. I noticed the APD getting trashed in the Netherlands in a story last night. I am quite pleased by that. I actually have a trip that I will likely now need to seek a refund on that bit for, which should be fun to convince them of.

    I wouldn’t bet on the UK matching as theirs has been in place for much longer and there are fewer alternatives. Ditto for Ireland (still cheaper than heading up to Belfast or fingind another way off the Emerald Isle). France has a few more alternatives, depending on where one lives, but still a pretty captive audience.

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