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The Honolulu Advertiser
Posted on: Thursday, August 9, 2001

Airlines advised to toe bottom line

Advertiser Staff and News Services

The world's airlines will lose money as a group in 2001 unless they take quick action to fill flights and cut costs as the economy slows, according to the International Air Transport Association.

At O'Hare International in Chicago and other destinations, major airlines are finding that growth in ticket sales is not keeping up with the increase in seat capacity. A trade group cautions them to find ways to balance these factors.

Bloomberg News Service

The trade group for airlines said traffic during the first half of the year, including passengers and freight, increased by 0.5 percent, compared with a 4 percent increase in seating capacity. The performance grew worse each month, IATA said. When capacity grows faster than demand, seats are left empty.

"These figures point to a worrisome evaporation of traffic growth," said IATA Director General and Chief Executive Pierre J. Jeanniot in a statement faxed to journalists. "Unless IATA members are able to drastically curtail their capacity growth during the next few months and further control their costs, all prospect of profitability for the year 2001 will quickly disappear."

The top eight U.S. carriers lost a total of $372 million in the second quarter, led by UAL Corp.'s United Airlines. Analysts say European carriers are following suit.

British Airways Plc, Europe's largest airline, has already reduced seating.

Seating capacity on flights arriving in Hawai'i was down slightly in the first quarter compared to the same period last year, a figure that mirrors visitor arrivals in the early part of the year, according to state economists.

Airlines provided 2.38 million seats to the Islands between January and March, according to a report from the Department of Business, Economic Development and Tourism, compared to 2.4 million last year, a drop of 1 percent.

The largest decline was seen in charter seats, which decreased 15 percent.

Total domestic seats were off 1.7 percent, the report said. International seats were down 0.2 percent.

Before this year's slowness, however, total scheduled capacity to the state increased 6.4 percent to a record 9.3 million air seats in 2000.

IATA includes the world's major airlines among its members. Its traffic figures include only passengers and freight carried across international borders, so it wouldn't include domestic air traffic within the United States or within other individual countries.

The most worrisome aspect of the numbers is the deteriorating trend, said IATA spokesman Tim Goodyear.

"We started off in January with cumulative growth of just under 10 percent," Goodyear said. The figures fell in February to 6.5 percent, in April to 4.5 percent, in May to 3.2 percent and in June to 2.2 percent.

"It's just going down by at least 1 percentage point a month and there hasn't been a decline in the passenger capacity offered anywhere close to that," Goodyear said. "Clearly the industry is keeping its fingers crossed, but if the decline in the growth rate continues, it could mean negative growth for the year."

The last time carriers worldwide experienced that was in 1991, at the beginning of a recession.

Goodyear says that after the recession lifted in 1992, carriers began making profits again in 1994 and have earned money every year since, including 2000, a situation which is "unique" in the post-World War II period, he said.

All through that period, traffic was growing at least as fast as capacity, he said, resulting in increasing load factors.

"We'd thought carriers would be profitable this year too, but as the director general said, clearly unless those current trends are brought under control, they're not going to be profitable this year," he said. "That would be the first time since 1993 that carriers haven't made a profit on international scheduled services."