U.S. Air Passenger Growth Slows in Sluggish Economy
U.S. airline passenger numbers will reach 1 billion in 2023, two years later than projected, because of slow economic growth, the Federal Aviation Administration said.
The revision in the agency’s annual forecast follows an “unprecedented” drop in operations last year, when take-offs and landings fell 10.4 percent, said Nan Shellabarger, the agency’s director of aviation policy and plans.
“We’re faced with an economic scenario we haven’t seen in my time in the forecasting business,” Shellabarger told reporters in a briefing in Washington. “There is no rapid recovery in demand predicted.”
The revision marks the third consecutive year the FAA has pushed back the expected date for 1 billion passengers, a milepost that compares with 704 million for the fiscal year that ended in September and the lowest in five years.
The global airline industry will take at least three years to recover from a travel slump, the International Air Transport Association said last month.
Airlines are in a “tenuous recovery” and may earn a profit this year as revenue improves and business-travel picks up, US Airways Group Inc. President Scott Kirby said today at an FAA conference.
U.S. airlines lost $60 billion from 2001 to 2009, according to the Air Transport Association, a trade group for U.S. carriers including Delta Air Lines Inc., AMR Corp.’s American Airlines and Southwest Airlines Co.
The FAA conducts the annual forecast to help plan its long- term needs for staffing and equipment.
‘Sluggish’ Spending
Consumer spending and economic growth will be “sluggish,” with gross domestic product rising 1.5 percent in the fiscal year that began Oct. 1, the FAA said. The agency projected 2.4 percent GDP growth in the 2010 forecast issued last year.
The agency also forecast today that unemployment will remain high and oil prices will exceed 2009 levels in the near term.
Even with those pressures, the industry is “poised in a way it hasn’t been for a very long time” said Gary Chase, an analyst with Barclays Capital in New York.
U.S. carriers have slashed costs by parking 500 planes and eliminating more than 30,000 jobs over the past two years. The group should return to profitability as the business cycle improves, Chase said.
‘Competitive Dynamics’
More consolidation is needed, though it is hard to predict when that will occur, said Kirby of US Airways.
Continental Airlines Inc. Chief Executive Officer Jeff Smisek said today at a separate JP Morgan conference in New York that he is watching “competitive dynamics” in the industry and would consider merging with another carrier if “it’s in our bests interests to bulk up defensively.”
Continental and UAL Corp.’s United Airlines called off merger plans in April 2008, which Smisek said was the right move at the time. It would be “premature” to make a decision on consolidation right now, Smisek said today.
Take-offs and landings will fall 2.7 percent in the current fiscal year, the FAA projects. Domestic enplanements, or the number of passengers on planes, will rise 0.4 percent this year and 2.5 percent annually during the 20-year period, the agency said.
International enplanements will increase 0.9 percent this year and will reach an average of 4.1 percent for the remainder of the forecast period, the FAA said.
The FAA has pushed back its forecast for reaching 1 billion passengers several times in the past decade.
In 2001, six months before the Sept. 11 terrorist attacks, the FAA said the country would surpass 1 billion passengers by this year. In 2002, the FAA slid the projection to 2013. In 2008, the agency moved it to 2016 from 2015. Last year, the FAA moved the milepost to 2021 from 2016.
Air France First European Airlines Use Airbus A380
Air France airline will conduct the first flight by using wide-body aircraft with four engines, the Airbus production. The aircraft used is the Airbus A380. The flight will cross the Atlantic to New York with 538 passengers.
Air France will become the first European airline to fly the A380, the pride of the European aircraft manufacturer Airbus and its parent company EADS. This aircraft has been used by Singapore Airlines, Gulf-based Emirates and Qantas of Australia.
Airbus A380 delays previously experienced production and shipments to some countries due to security factors. Until this plane diluncrukan some people are still worried about aircraft safety factor.
Bombardier Aerospace chose AAR Corp. to Design and Produce CSeries Aircraft Composite Flap Track Fairings
AAR CORP. today announced that it has been selected by Bombardier Aerospace, Belfast to design and manufacture composite flap track fairings for the wings of the new CSeries family of commercial aircraft. The work will be performed by AAR Composites, which develops and fabricates advanced composite structures for a wide range of aviation and aerospace applications. The contract could be worth more than $90 million over the life of the program.
The CSeries aircraft, Bombardier’s newest platform, is specifically designed for the 100- to 149- seat market. The aircraft will be built with 70 percent advanced lightweight structural materials, which contribute to the fuel efficiency, performance and extended range of the aircraft.
“AAR is proud to be included among the prestigious partners and suppliers supporting the development and production of the CSeries aircraft and helping to extend Bombardier’s reach into the single-aisle mainline aircraft market,” said Timothy J. Romenesko, President and Chief Operating Officer for AAR CORP. “We look forward to providing a highly efficient structural design that contributes to the CSeries aircraft’s operating economics, reduced environmental impact and cost-effective operation.”
Michael Ryan, Vice President and General Manager, Bombardier Aerospace, Belfast, said: “We are delighted that AAR now joins Bombardier’s other US suppliers on the CSeries aircraft program who are providing high-tech components and systems that are at the center of US aviation expertise. We look forward to AAR’s contribution to the development of the game-changing CSeries aircraft.”
Bombardier Aerospace, Belfast is responsible for the development, design and manufacture of the advanced composites wings for the CSeries aircraft family. It has successfully assembled a preproduction demonstrator wing using its innovative Resin Transfer Infusion process, testing of which is due to get under way shortly.
AAR Composites has a 30-year history in the development, design, structural analysis, tooling, certification and fabrication of complex composite structures and a variety of specialized molded components. Located in Clearwater, Florida, AAR Composites recently expanded its manufacturing capabilities with the opening of a west coast facility in Sacramento, California. The expansion provides additional capacity for autoclave, oven, Resin Transfer Molding and Vacuum Assisted Resin Transfer Molding processes.
AAR is a leading provider of products and value-added services to the worldwide aerospace and defense industry. With facilities and sales locations around the world, AAR uses its close-to-the-customer business model to serve airline and defense customers through three operating segments: Aviation Supply Chain; Maintenance, Repair and Overhaul; and Structures and Systems.
American Eagle Airlines Releases December Traffic Results
American Eagle Airlines, a subsidiary of AMR Corp, has reported its traffic results for December 2008.
Revenue passenger miles for the month showed a decrease of 12.4% compared to December 2007, while available seat miles dropped by 13.5%, resulting in a load factor of 70.2%, an increase of 0.9 percentage points.
The airline boarded a total of 1.4m passengers in December 2008, a decline of 11.5% from the same period last year.
Year-to-date, American Eagle recorded a decrease in revenue passenger miles of 11.0% compared to the same period a year ago, while available seat miles fell by 6.9%, resulting in a load factor of 70.2%, a drop of 3.2 percentage points.
A total of 19.1m passengers were boarded by American Eagle in 2008, a decline of 10.0% compared to 2007.
Airline Industry Sees Pain Extending Beyond the Recession
The recession may have bottomed out, but big U.S. airlines worry that things will never return to the way they were. They may be correct.
The industry has yet to recover from an across-the-board revenue drop that followed the 2001 terrorist attacks. If thrifty consumers and cost-cutting businesses are this recession’s legacies, airlines will be forced to shrink even more.
Growing smaller means parking planes, laying off workers and dropping destinations, meaning potential customers have fewer reasons to book. Earlier this month, Delta Air Lines Inc. cited a gloomy revenue outlook for the rest of the year in its plans to cut more management jobs. If passengers don’t return to the skies and fares don’t rise, some airlines could run low on cash, raising the specter of additional bankruptcies.
Airlines are suffering huge revenue declines as customers put off purchases, trade down to cheaper fares and bank more personal income. Airlines fear that this behavior will stick, exacerbating the “new normal” the industry has been grappling with for the past eight years.
For decades, U.S. airlines could rely on a remarkably stable relationship between their revenue and gross domestic product. Year after year, domestic revenue came in at 0.73% of GDP on average, and total passenger revenue was equal to 0.95% of GDP. That ended after Sept. 11, as travelers stayed home because of the jitters or were put off by new airport-security measures. For the year ended March 31, domestic revenue was 0.54% of GDP, while total passenger revenue was 0.76% of GDP.
“It’s not terrorism this time,” said David Swierenga, an aviation economist. “It’s a sea change in demand.”
Scott Kirby, president of US Airways Group Inc., said the rapid growth of discount airlines is the main culprit behind what he calls “a long-term secular decline” in the revenue-to-GDP relationship. Since Sept. 11, low-cost airlines have grown rapidly, putting downward pressure on fares, while travelers increasingly shop for the cheapest tickets on the Internet. The Transportation Department estimates that budget airlines now account for 40% of the domestic market, up from 22% in 2001. While lower fares stimulate demand, Mr. Kirby said, airlines still wind up losing revenue overall.
As the larger carriers struggled after Sept. 11, low-fare king Southwest Airlines Co. continued to expand, and upstarts such as JetBlue Airways Corp. and AirTran Holdings Inc. unleashed big flocks of new planes. Searching for greener pastures, the larger airlines added many seats on big-margin international routes.
It took a sudden run-up in fuel prices last year to force the industry to reverse course and begin cutting seats and deferring new planes to address the imbalance between supply and demand. But then came the crushing recession, which hit premium cabins on international routes the hardest. Now airlines are reducing capacity on those routes as well, and putting seats on sale.
If the revenue-to-GDP ratio had stayed where it was pre-2001, the airlines would have raked in an additional $27 billion in revenue in the year ended in March, according to the Massachusetts Institute of Technology Airline Data Project. Trying to plug that gap, carriers are cutting costs and adding fees. While this “ancillary” revenue amounts to several billion dollars a year, it isn’t nearly enough.
“What has become clear is there is not enough demand to satisfy the current level of supply at price levels that can sustain profit for the industry as a whole,” said Darin Lee, an aviation expert at LECG LLC.
Discretionary leisure trips are one focus of the new frugality, forcing airlines to counter with deep, extended fare sales to try to stimulate demand. The picture is bleaker among business travelers, who traditionally produce more revenue. Their employers are cutting travel budgets and embracing videoconferencing.
Continental Airlines Inc. said the number of its “high yield” customers — who book costlier refundable tickets closer to their trips or have their travel arranged through corporate accounts — fell by more than one-third in February through May versus a year earlier and was down 27% in June.
Continental President Jeff Smisek, speaking last month after announcing a second-quarter loss, said that when it comes to revenue, “we do think we have hit the bottom. But we don’t know how long we will bounce along the bottom and what the rate of decline will be.”
American Airlines parent AMR Corp. said it saw business travel decline more in the second quarter than its traffic overall or its unit revenue. After announcing second-quarter red ink, Chairman and CEO Gerard Arpey said he has lived through several down cycles but isn’t optimistic about a quick recovery this time: “Whether or not this cycle will be similar to past, I don’t know.”
