Global airline capacity and traffic volumes continue to decline
This is the latest prediction from OAG (www.oagaviation.com): Nearly 5 percent fewer flights forecast in 2009 and a commensurate 3 percent drop in seat capacity.
Less crowded airports may mean less hassle on the ground; but not much hope of emptier planes, as airlines cut capacity.
The world’s airlines scheduled 4.9% fewer flights for March 2009 compared with the same month last year, with a 3.3% drop in seat capacity, according to the latest statistics from OAG (www.oagaviation.com).
This is the eighth successive month of decline, and represents a reduction of more than 122,000 flights and 9.8 million seats year on year. The total number of flights scheduled to operate worldwide in March is 2.38 million, offering 289.8 million seats to travelers around the globe. Global airline schedules for the first quarter 2009 have dropped by 6.7%, or 491,000 fewer flights. This is the first time we have seen a downturn in Q1 figures since 2002, when the industry was absorbing the double impact of 9/11 terrorist attacks on the U.S. and an economic meltdown from the burst of the dot.com bubble. Capacity for this quarter also has fallen by 4.4%, representing a reduction of 38.6 million seats. Within the United States this month, domestic airline flight activity has dropped 9.2% overall, or 76,164 fewer flights, resulting in 6.5 million fewer seats. The U.S. low cost sector is showing a year-on-year decrease for the month of just over 9% for both frequencies and capacity. David Beckerman, vice president market intelligence at OAG, says: ‘OAG figures for March reveal a continuing slowdown in the global figures and on the key long-haul routes between North America and hubs in Europe, Asia Pacific and Latin America. Asia is holding up much better with a marginal decline in frequencies and slight growth in intra-regional capacity, while the Middle East is bucking the global trend with comparatively healthy growth, especially for international operations. Europe continues to see sharp cutbacks on routes to, from and within the region, while Africa remains fairly stable compared with this time last year.’ OAG FACTS uses interactive graphs to display a visual trend of the performance of a specific airport, route, country or region from 2001 onwards, sourced from OAG’s consolidated database of global airline schedules. For a fuller review of this month’s OAG FACTS statistics, please visit http://www.oagaviation.com/aviation-reports/reports-f-and-c-trends.htm.
According to a report by EUROCONTROL in Brussels, the decline in air traffic will affect all sectors.
‘Even the low-cost market is not immune – in November 2008 it saw its first 12-month decline in 15 years and in February saw 5% fewer flights than February 2008 (even allowing for the leap year). The business aviation market is also declining – down by 21% in February 2009 compared to February 2008. The weak trans-Atlantic traffic caused by the economic and financial crisis has wiped out any benefits of the EU-US Open Skies agreement which came into effect last spring.
The economic crisis is affecting air traffic on three fronts: reduced output and incomes means fewer goods to ship and lower demand for air travel; secondly, credit difficulties have hindered restructuring and investment by aircraft operators and contributed to bankruptcies; and finally recent migration flows within Europe, which had brought an increase in air travel, now appear to be reversing.
“As passengers look for cheaper ticket options, yields are falling and load factors remain weak despite airlines cutting capacity in the winter,” said David Marsh, Head of Forecasting at EUROCONTROL. “All of these factors suggest that this decrease will not be short-lived and the recovery in traffic growth is not expected before the end of 2009 with, at best, weak growth in 2010.”
Seems as though sleep-deprived passengers on long night flights may be getting their own back on noisy crews and the noise of engines and air-conditioning.
I just read a report that air crew flying the Airbus A 380 ‘super jumbo’ have been disturbed by passenger noise when resting due to the extremely low noise level of the aircraft. A spokesman for Emirates, whose staff complained of the disturbance, said that they would play engine noise to the crew to simulate the noise of a normal plane!
How about marketing engine-noise CDs to help jet-lagged passengers come down to earth?
‘The state of the airline industry today is grim. Demand has deteriorated much more rapidly with the economic slowdown than could have been anticipated even a few months ago. Our loss forecast for 2009 is now US$4.7 billion. Combined with an industry debt of US$170 billion, the pressure on the industry balance sheet is extreme,” says, Giovanni Bisignani, director general and CEO of IATA in Geneva.
Industry revenues are expected to fall by 12.0% (US$62 billion) to US$467 billion. By comparison, the previous revenue decline, after the events of 11 September 2001, saw industry revenues fall by US$23 billion over the period of 2000 to 2002 (approximately 7.0% ).
Demand is projected to fall sharply with passenger traffic expected to contract by 5.7% over the year. Revenue implications of this fall will be exaggerated by an even sharper fall in premium traffic. Cargo demand is expected to decline by 13.0%. Both are significantly worse than the December forecast of a 3.0% drop in passenger demand and a 5.0% fall in cargo demand. Yields are expected to drop by 4.3%.
Falling fuel prices are helping to curb even larger losses. With an expected fuel price of US$50 per barrel (Brent oil), the industry’s fuel bill is expected to drop to 25% of operating costs (compared to 32% in 2008 when oil averaged US$99 per barrel). Combined with lower demand, total expenditure on fuel will fall to US$116 billion (compared to US$168 billion in 2008).
“Fuel is the only good news. But the relief of lower fuel prices is overshadowed by falling demand and plummeting revenues. The industry is in intensive care. Airlines face two immediate fundamental challenges: conserving cash and carefully matching capacity to demand,” Bisignani says.
IATA also revised its forecast losses for 2008 from US$5.0 billion to US$8.5 billion. The fourth quarter of 2008 was particularly difficult as carriers reported large hedging-related losses and a very sharp fall in premium travel and cargo traffic.
Regional differences remain significant:
Asia Pacific: Carriers in this region continue to be hardest hit by the current economic turmoil and are expected to post losses of US$1.7 billion (significantly worse than the previous loss forecast of US$1.1 billion). Japan, the region’s largest market is expected to see GDP drop by 5.5% in 2009 with exports already in freefall. China has been successful in stimulating demand in domestic markets with pricing adjustments. International demand to and from China is expected to contract by between 5% and 10% over the year. India, whose market for international air services tripled in size between 2000 and 2008, is expected to see capacity increase by 0.7% in 2009, while demand drops between 2% and 3%. Overall, the region is expected to see a 6.8% fall in demand but only a 4.0% drop in capacity.
North America: Carriers in this region are expected to deliver the best performance for 2009 with a combined US$100 million profit. A 7.5% fall in demand is expected to be matched by a 7.5% cut in capacity. Despite the worsening economic conditions, this is relatively unchanged from the earlier forecast of a US$300 million profit. Carriers are benefiting from careful capacity management and lower spot prices for fuel.
Europe: Europe’s carriers are expected to lose US$1 billion in 2009. A forecast 2.9% fall in the continent’s GDP is expected to result in a drop in demand of 6.5%. Capacity cuts of 5.3% will not keep pace with the fall in demand, driving yields and profitability down.
Latin America: While Latin America is forecast to maintain positive GDP growth in 2009, the collapse in demand for commodity products is expected to see traffic plunge by 7.8%. Carriers are only expected to be able to drop capacity by 3.8% resulting in losses of US$600 million.
Africa: African carriers are expected to produce 2009 losses of US$600 million. This is six times the US$100 million lost in 2008. The continent’s carriers are losing market share on long-haul routes. Demand is expected to drop by 7.8% with only a 6.0% fall in capacity.
Middle East: Middle East will be the only region with demand growth in 2009 (+1.2%). But this will be overshadowed by the impact of a 3.8% increase in capacity. While this is significantly below the double-digit growth of previous years, the region continues to add capacity ahead of demand. The result is expected to be a loss of US$900 million (a slight deterioration from the US$800 million loss recorded in 2008).
Looking ahead:
Much of the deterioration forecast for 2009 had already happened by January. As manufacturers end their de-stocking there should be a modest bounce in air freight as component shipping rises a little. But weak consumer and business confidence is expected to keep spending and demand for air transport low.
‘The prospects for airlines are dependent on economic recovery. There is little to indicate an early end to the downturn. It will be a grim 2009. And while prospects may improve towards the end of the year, expecting a significant recovery in 2010 would require more optimism than realism,” Bisignani says.
Bisignani also cautioned that this crisis must bring change. ‘Recovery will not come without change. There is no doubt that this is a resilient industry capable of catalysing economic growth. But we are structurally sick. The historical margin of this hyper-fragmented industry is 0.3%. Bail-outs are not the prescription to return to health. Access to global capital, the ability to merge and consolidate and the freedom to access markets are needed to run this industry as normal profitable business. This is IATA’s Agenda for Freedom - and a very cost effective solution for governments desperate to stimulate their economies.’
Remember my mantra: What’s bad for the travel trade is good for the traveler; and vice versa.
Let the bad times roll!
Some years ago, I was having a drink with the chairman – I’ll call him Gerald – of a famous London advertising agency. Gerald had picked up a chunk of new business and brought his wife along to celebrate.
‘Gerald, you’re the best salesman I ever met.’ I meant it as a compliment (after all it was his treat!”). But his wife rounded on me. ‘Gerald is not a salesman: he is an advertising man,’ she snarled.
Sorry I spoke. But in business, or indeed, life, we are all salesmen in one way or another. We sell products, services, sentiments, ideas – or simply ourselves. Every successful executive knows , whatever his or her job title, that selling is an integral part of their personality, their management style.
The first step towards salesmanship is selling yourself on yourself. If you don’t believe in yourself, you’ll never be able to sell to others. That’s the key: the ‘product’ is you. Selling is nothing more than a transfer of enthusiasm. Not that I’ve found myself to be a pushover on those recurring days when my level of self-esteem would make Kafka come on like an optimist.
Still, optimism – a vital precursor to self-confidence – can be acquired in several spurious ways – which doesn’t necessarily make it less authentic. There’s nothing to match the euphoria of going into a budget meeting with a job offer in your pocket. Even an exploratory call from a headhunter can inspire you to put across the Big Idea to the board.
Sometimes there can be merit in being passive.
‘You’d better go and see Tom. He’s sure to have an idea for us.’ This may involve selling Tom your need for an idea. The selling process can thus be turned upside down, to your advantage. It can also be a subtle way of getting your idea adopted.
Talking of adoption; the best ideas have many parents; bad ideas are orphans. Throwing ideas around is like musical chairs: make sure you are not left holding the dummy when the music stops.
On the other hand, a great idea can all too easily be appropriated by someone else. Of course, this may be what you want. But how many times have you made a suggestion only to have it taken up, and refined, by your best enemy? Whatever the circumstances, it usually pays to keep residual rights of authorship for eventual glory. This can be done by ‘banking’ your idea with the boss’s boss – or one of his peers.
You may also want to protect the provenance of an idea that you have sold to a subordinate – an insurance in case he or she sells it to your boss; at its most dangerous on your open flank in a group discussion. (This is the flip-side of Management by Persuasion, called Management by Pre-Emption.)
Lateral selling – to peer groups in other departments and subsidiaries – is even more tricky. You obviously want to stay on good terms (you may become a victim of a ‘lateral arabesque’ to the Zambian subsidiary in a future reorganization). But in selling an idea you’re sure to come across the Not Invented Here syndrome. So here again, you have to make them believe that it’s their own idea. This is crucial when selling a bad idea, or an Idea Whose Time Has Not Yet Come. Don’t miss the ‘sell-by’ date.
Every good salesman knows that you don’t sell a product, or a service, you sell its benefits. Sell the sizzle, not the steak; an old adage, but a good one. It’s the sizzle that makes people’s mouths water, makes them suddenly, excruciatingly conscious of their needs, desires, aspirations… You have to think about the ‘what’s in it for me’ syndrome. Your boss has to see an inside track for his or herself in your new plan for decentralization; if you are selling software, talk in terms of functionality and better service to customers; if you are selling the idea of maintaining advertising in the recession, point out how crucial it is to keep market share, even at the expense of third-quarter earnings, and how to sell this eventuality to the shareholders. And so it goes.
How, where and when to sell ideas depends on circumstance. You may find the right time to strike is just before the chairman goes on holiday so that he has plenty of time to assimilate the idea and make it his own. Or, just before the shareholders’ meeting when he’s wound up (Management by Terror, or Management by Grasping at Straws).
These days, I am usually selling the idea of taking up someone else’s time; not always to their advantage. (As Joan Didion once said: ‘Writers are always selling somebody out.’) One advantage of selling on the phone is that you don’t have to buy lunch (not that day anyway). Another is that you can usually keep the chat short, if not sweet.
This brings me to the last maxim in the salesman’s lexicon: You run the risk of losing a sale if you keep on talking after a commitment has been made. Once you’ve sold, shut up.
I’m sure you’ll buy that.