Navigating the unsettled skies


Two new reports this week provide insight into how slumping economies and high oil prices are taking a toll on airlines in the United States and overseas.

On Thursday, Southwest Airlines announced revenue miles flown fell 5.2 percent in August nationally and load factors on its aircraft fell from 80 percent to 75 percent.

The announcement came one day after the International Air Transport Industry Association estimated airlines around the globe would lose a combined $5.2 billion in 2008, thanks largely to high oil costs.

It's no surprise to anyone who's been following the airline situation in Las Vegas, where traffic has been on the decline for nine consecutive months.

"The situation remains bleak," said Giovanni Bisignani, director general and CEO of the Montreal-based International Air Transport Association. "The toxic combination of high oil prices and falling demand continues to poison the industry's profitability."

Even Southwest, which has turned a profit every quarter since 1991, appears to be slowing down in recent months.

The airline, which operates more than 200 daily flights from McCarran International Airport, is still posting small gains in key traffic figures for the year. But those numbers have slipped into negative territory in recent weeks, according to its latest monthly traffic report.

For the year Southwest has hauled about 61 million paying passengers, a 2.2 percent increase above the pace of 2007. The nearly 803,000 trips flown year-to-date nationally by the airline is up 4.4 percent from the 2007 pace.

Lately, however, the numbers have turned downward.

In August the number of paying passengers decreased 6.3 percent to about 7.6 million nationally. The number of trips flown was flat at about 101,000.

Southwest's percentage of full seats per aircraft, or load factor, also fell in August from 80 percent to 75 percent.

Despite the recent declines, the prospects for Southwest aren't nearly as bad as they are for many other airlines.

The global airline report stated fuel now represents about 36 percent of the cost to operate an airline, up from 13 percent in 2002.

It also stated passenger demand globally increased 1.9 percent in July, a five-year low, and that capacity increased 3.8 percent. That suggests airlines need to cut even more routes to stay afloat.

The fiscal losses are expected to be greatest on this continent.

North American carriers are expected to lose $5 billion in 2008, according to the air transport association.

In Asia, airline profits will shrink from $900 million to $300 million.

European profits are expected to decrease from $2.1 billion to $300 million. Latin American and African carriers will see their losses increase from $300 million in 2007 to $700 million this year, the association reported.

The consequences of higher fuel prices are already showing in the United States.

Four airlines have closed up shop this year and another, Frontier, filed for bankruptcy.

The Air Transport Association of America reports its member airlines lost $10.89 per passenger in the first quarter of 2008, an increase from the $9.12 per passenger loss member airlines posted from 2001 to 2007.

Only recently has the culture of airline management begun to shift in earnest from a focus on gaining and holding market share to finding and increasing profits.

In Las Vegas, managers at Allegiant Air readily admit they will sacrifice growth to maintain profits.

"(It) has taken the industry almost three decades to get to this point since deregulation at the end of the '70s," said Robert Ashcroft, a former airline analyst who is now Allegiant's vice president of planning.

"It takes a long time to correct bad habits," Ashcroft added.

But Ashcroft says airlines in the United States are responding more quickly to high fuel costs than those in other countries.

That's because it is a matter of survival.

"(The) rest of the world deregulated later than the U.S., and in some places, there really has been little deregulation," he said.

Contact reporter Benjamin Spillman at bspillman@reviewjournal.com or 702-477-3861.

 

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