Despite A Weak Q4, Majors Increase Biz Fares
<B> Despite A Weak Q4, Majors Increase Biz Fares</B>
The major U.S. airlines in the fourth quarter of 1998 were profitable as a group, but the largest of the carriers saw their earnings drop by a greater percentage, year-over-year, than they have in years.
American, United and US Airways were hit with double-digit percentage decreases, while Delta just cleared record fourth quarter earnings and Northwest--suffering from the effects of last year's strike--plunged by 272 percent into the red. Of the big eight, only Continental and Southwest improved on their fourth-quarter 1997 figures, while TWA had yet to report earnings as of early last week.
The industry's smallest majors--Alaska and America West--produced vastly different results, with Alaska up 79 percent in earnings and America West flat year-over-year.
Although traffic was up during the quarter, yields dropped 4.2 percent in October, 1.7 percent in November and 4.1 percent in December, said the Air Transport Association. Revenue per available seat mile was down 3.1 percent, 0.7 percent and 5.2 percent, respectively.
A likely explanation for these disappointing figures is that corporate travel budgets ran out earlier in the fourth quarter than expected, and travelers began booking nonrefundable fares or not traveling.
Despite that possibility, the majors this month managed to convince Northwest to break its streak of holding out on fare increases, resulting in a 2 percent increase across the board--the first across-the-board business fare increase in more than 15 months (<I>BTN,</I> July 20, 1998).
According to airline analyst Susan Donofrio, of BT Alex Brown in New York, the fare increase pushes airline earnings "in the right direction, but we don't believe we're unequivocally there yet." She said the extra cash would bring the majors' domestic revenues up by 2 percent, but that falls short of her forecast of 4.1 percent domestic revenue growth for the year. "We shudder to think about what 1999 is going to look like, given that this has been a low jet fuel price, modest capacity growth quarter," she said.
The airlines themselves are shuddering as well. "This is the first year in a while that there's uncertainty from a planning side," said Jim Compton, Continental's vice president of pricing. However, Continental noted that its early yield results for the first quarter looked promising.
Moody's Investors Service recently stated that "unprecedented profitability has finally peaked," although airlines still will have a good year in 1999.
The ATA's predictions for 1999 are that traffic will continue to rise by 3.1 percent; last year's record industry load factor will drop slightly; yield too will drop a bit; and capacity will increase 3.5 percent.
Donofrio estimated a higher 1999 capacity increase--5.4 percent--for the 10 majors that make up nearly half of ATA's members. She also noted a shift in international capacity from the Pacific to the Atlantic: Her earlier predictions of 9 percent in the Pacific and 6.7 percent in the Atlantic were revised to 1.1 and 10.9 percent, respectively.