IN PICTURES: Eight Ways To Survive A Market Downturn
Traffic Volume Double Bottom
After reporting sizable losses over the last three to four quarters, third-quarter results for most air carriers came in relatively better, albeit still mixed. The drastic fall in revenues, which has more than offset the fuel savings resulting from lower oil prices so far this year, evened out during the latest quarter. Airline execs are now speaking optimistically that they are seeing signs of a return in demand, which collapsed last year and prompted drastic reductions in capacity across the industry.
Traffic numbers for October showed that unit revenues for the airlines continue to fall, but at a slower pace than in the prior month. Traffic stats show that industry unit revenue fell 14 percent in October, a modest improvement over a 17.4 percent drop in September. That has prompted some industry analysts to declare that the June and September double dips in traffic volumes now constitute a double bottom.
Fare Hikes Spell A Return Of Pricing Power
Not surprisingly, most airline execs appear to agree with this assessment, offering up cautious but generally positive assessments about the prospects for a return in demand. Some of that optimism centers on signs of a recovery in business travel. A pick-up in volumes by these full-fare-paying passengers would do much to lift airline profits.
Backing up this optimism are fare hikes implemented so far this year. While the latest $10 domestic round-trip hike is relatively modest, it does represent the fifth straight fare increase so far in 2009. It's a sign that pricing power may be returning.
Bottom Line
With airline capacity, and hence operating costs, down significantly over the past year, even a modest lift in demand should have a more amplified impact on the bottom line than would have been the case before the cuts were made. With the odds of such an outcome now better than before, the recent uptick in share prices stands a better-than-average chance of gaining even higher altitude. (To learn more, see The Industry Handbook: The Airline Industry.)
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