The past year was the worst in airline history. Passenger demand fell 3.5% and the average load per flight was just 75.6%. Freight also fell by 10.1% with an average load of 49.1%. Predictions for 2010 were not quite as bad, but the airlines were still predicted to lose $5.6 billion compared with $11 billion in 2009.
But today the International Air Transport Association cut its projected loss in half, to $2.8 billion. The IATA said that a recovery in demand that began in December 2009 has continued through the first two months of the new year. The group also lowered its expected total airline losses for 2009 from $11 billion to $9.4 billion.
The gains are highest in the Asia-Pacific and Latin American regions, where passenger ticket demand grew by 6.5% and 11% respectively in January. Europe and North America gained just 3.1% and 2.1% respectively in January.
The demand growth in Asia-Pacific likely contributed to American Airlines’ (AMR) and Delta Air Lines (DAL) failed attempts to buy a piece of Japan Air Lines before JAL filed for bankruptcy. The American companies were bidding for JAL’s agreement to partner with one or the other to take advantage of the recent Open Skies treaty between the US and Japan. United Airlines (UAUA) already has a partnership with All Nippon Airlines.
The US and European markets are not where the growth is for airlines, just like neither market is spurring the growth in oil consumption. Asia, particularly China and India, are growing GDP faster than any other country in world. Brazil, with the largest economy in Latin America, is expecting GDP growth of 5% this year, way up from last year’s essentially flat performance.
According to the IATA, long-haul freight flights originating in Asia are not keeping up with demand. Demand growth is expected to be 12% in 2010, and Asia-Pacific carriers are expected to see a 2009 loss of $2.7 billion turn into a 2010 profit of $900 million.
Profits for Latin American carriers are expected to be flat, at a positive $800 million, and demand is expected to grow by 12.2%. Both North American and European carriers are expected to post losses in 2010 due to the slow pace of economic recovery in the regions.
There are not a lot of investment opportunities in foreign airlines, many of which are national airlines owned by governments. Two Chinese airlines, China Eastern Airlines Corp. (CEA) and China Southern Airlines Company (ZNH), are trading within sight of 52-week highs.
American is negotiating with China Eastern to join its oneworld Alliance. The airline is also talking with a Brazilian carrier, Gol Linheas Aereas Inteligentes SA, about signing up with the alliance. India’s Kingfisher Airlines has agreed to join the oneworld Alliance, pending regulatory approvals.
The Star Alliance includes 26 carriers, compared with oneworld’s 12, and includes Air China. US carriers United, Continental Airlines Inc. (CAL), and US Airways Group, Inc. (LCC) are members of the Star Alliance.
Routes to growing markets are a plus for the airlines, but fuel costs are rising, and that will moderate profits. IATA expects fuel costs in 2010 to increase from last year’s 24% of operating costs to 26%.
Airlines are not out of the woods by any means, but there are some positive signs. A lot depends on the speed of the global economic recovery and the impact that will have on fuel prices. New routes to fast growing markets are important, but having to pay a king’s ransom to get there could halt profits before they show up.
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