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Global premium airline traffic in September declined 8 percent versus a year earlier, the fourth consecutive month of declining global premium volumes, according to the International Air Transport Association. Given worsening economic conditions in October, IATA expected "a further substantial decline" in premium travel.
"The sharp fall in business travel coincided with a steep decline in the confidence of manufacturing businesses in Europe, Japan and the U.S.," according to IATA. The drop-off in financial-sector traffic contributed to a 2 percent decline in premium passengers across the North Atlantic, a market that had previously showed continued growth, IATA noted.
"Many of those high rollers that once nestled in those pricey [premium seats] are now far more focused on job retention than seat selection," according to a recent note from Unisys Transportation Management Consultants. "The front of the airplane, source of most airline profits, is feeling the pinch. It is very worrisome to carriers that are seeing prime revenue generators either disappear or move to the back of the airplane."
American Airlines by mid-October started to see "a little lower corporate travel," said CFO Tom Horton. "The international part of the airline business--transatlantic in particular--tends to be more cyclical than the rest of our business, so as the global economy gets softer, were going to have to keep a real close eye on what happens. Our advance bookings internationally are a little softer than they are for the system."
At United Airlines, "we have seen a corresponding drop-off in our corporate ticketed revenue, basically a direct match to our declining capacity," said COO John Tague.
Delta Air Lines, too, reported that "most of the corporate clients seem very cautious," according to executive vice president Glenn Hauenstein. "We have had some clamping down in the fourth quarter." Delta last week in a Securities and Exchange Commission filing noted that "international bookings are down 4 to 5 points" versus a year earlier. The carrier expects to further cut domestic and international capacity "to better align supply with current levels of demand."
Continental Airlines discussed industry-specific trends in corporate travel after surveying its client base. Financial sector firms in New York "are feeling the biggest effects, with all of them indicating a significant reduction in travel spend for the remainder of the year and a sizable reduction in their 2009 budgets," said president and COO Jeff Smisek. Elsewhere, he noted "a significant downturn in traffic from the automotive companies and related vendors throughout the globe, with particular reductions in travel between the United States and Asia, and the U.S. to/from Mexico. We expect our pharmaceutical customers will be budgeting slightly lower for travel in 2009." The airline anticipated no travel expense reductions "by most of our energy customers," Smisek added. "The oil and gas markets, [including] areas in Scandinavia, are likely to be somewhat less hurt."
But overall, "everybody, everywhere is suffering from the global recession," Smisek said. "You would expect to see business travel fall off in all markets."
Absolute October demand on U.S. carriers increased versus last year, according to a 20 November note by JPMorgan analysts. "Interestingly, relative to September, domestic revenue showed a steeper deceleration than international, with domestic slowing from +2.0 percent to -2.5 percent, whereas international revenue growth merely slowed from 10.5 percent to 9.6 percent," the analysts wrote in a recent research note. "Given continued corporate retrenchment, we would expect to see this relationship reverse in coming months."
Meanwhile, "November may be the first month in nearly five years (adjusted for leap years) that [overall U.S. airline] revenue declines year on year," according to JPMorgan.
As economic worries spread to other regions, so did news of declining business traffic. Within Asia, according to IATA, September premium traffic declined 12 percent year over year. From the United States and Europe, premium traffic to Asia dropped 12 percent and 9 percent, respectively.
Reporting on 6 November a S$250 million (US$175 million) drop in fiscal first half profits, Singapore Airlines noted that "the financial turmoil around the world and weak consumer confidence are impacting demand for air transportation. Although advance bookings for the immediate next quarter are holding up reasonably well, there are signs of weakness beyond that."
In Japan, both All Nippon Airways and Japan Airlines highlighted stagnating business demand. Also due to fuel costs and other pressures, ANA said its fiscal first half net profit was off 79 percent from a year earlier. It referenced "the shadow cast by the global recession on business travel demand on our North American routes in the first instance, and latterly on our European routes, and a drop in demand for travel in general to China. ... The overall drop in demand was "beyond anything we could have imagined at the beginning of the current fiscal year."
Hong Kong's Cathay Pacific reported "weakness" in October traffic numbers. "October is traditionally one of the busiest months for corporate travel but the peak didn't materialize this year," according to a statement by general manager of revenue management Tom Owen. "Demand to and from Hong Kong remained depressed, particularly on the corporate sales side. We also continue to see the fallout from the financial crisis on most long-haul routes as well as regionally, reflecting a tightening of corporate travel policies and reduced travel for both business and leisure. The outlook remains challenging."
Cathay Pacific on 5 November issued a profit warning saying that 2008 financial results "are expected to be disappointing," partly due to "reduced first and business class travel."
Korean Airlines reported a 12 percent uptick in third-quarter premium revenue but predicted "air travel demand will continue to slow down during the fourth quarter, especially for the Korea outbound."
India's Jet Airways in its fiscal second quarter lost R3.8 billion (US$82 million) versus a profit of R283 million (US$7.1 million) a year earlier. "The impact of the global meltdown and the resultant slowdown in traffic has been felt by airlines across the world and India has been no exception to this," according to a carrier statement. "We have announced the discontinuation of our Mumbai-Shanghai-San Francisco route with effect from January 2009. There are no further expansions planned in the near future."
Qantas this week said it will cut additional capacity--the equivalent of grounding 10 additional aircraft--"as the global financial crisis continued to affect passenger demand" and now expects operations during the next six months to be be 4 percent smaller year over year. "We are in unpredictable times and the international business market, in particular, has slowed," said chief executive Geoff Dixon.
In Europe, both Air France and British Airways posted significantly smaller profits for the period ended 30 September. Tallying its latest six-month result, British Airways reported that pre-tax profit plummetedto £52 million (US$95 million) from £616 million (US$1.1 billion) a year earlier. "Trading conditions continue to be challenging, with long-haul premium traffic in particular having weakened after the summer," according to the airline. Specifically, premium class travel on BA dropped 8.6 percent in September and 9.2 percent in October.
Also partly due to fuel prices and other factors, Air France-KLM's fiscal second-quarter profit dropped 96 percent to €28 million ($40 million). "When there's an economic crisis, businesses always want to reduce their general expenses, and individuals are more careful about their spending," said Air France chairman Jean-Cyril Spinetta, as quoted by the New York Times. "There was a slide from the class at the front of the plane to the class at the back."
Elsewhere in Europe, SAS Group's earnings in the third quarter were SEK101 million (US$15 million) versus SEK553 (US$82 million) a year earlier, and total passenger count dropped by 5.4 percent. "The reasons for the decrease in earnings in the third quarter are the same as earlier in the year: an economic trend that impacts total demand and alters the behavioral pattern of business travelers, and the continued high oil price during the period," according to a company statement.
Finnair's latest pre-tax quarterly result was a €22.3 million (US$32 million) loss versus a €55.9 million (US$81 million) profit a year earlier. "What is usually our best quarter of the year fell far short of expectations," said CEO Jukka Hienonen. "Demand is actually quite good, but instead of business passengers, aircraft are increasingly filled with leisure passengers who pay less for their tickets."
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