Air travel remains in descent

Associated Press

NEW YORK — While airlines have had some success this summer in luring leisure travelers with inexpensive fares, they have not been able to bring back their disappearing profits.

Revenue from domestic air travel fell by more than 10 percent in July — the third monthly decline in a row. Analysts say they believe major carriers will report wider net losses than previously expected for the third quarter, historically a robust season for the airlines.

If the July through September quarter is a losing one for airlines, it would be just the fourth time in 30 years.

Corporate spending, which accounts for between 50 and 70 percent of airline industry revenues, has plunged this year as companies cut back on travel, or save money by booking flights in advance, in response to the nation's persisting economic malaise.

Industry watchers had hoped the decline in business travel spending could be at least partially offset this summer by added revenues from leisure travelers. But because airlines are attempting to fill up their planes by selling cheaper tickets, July's average fare earned per mile was the industry's lowest since 1992, according to Merrill Lynch analyst Michael Linenberg.

The average one-way fare for domestic travel in July was down 9 percent from a year ago, benefiting travelers. But Linenberg said the industry is on track to lose $540 million in the third quarter and $2 billion for the year because of the deterioration in revenues.

Revenue per available seat mile fell 12.3 percent in July, compared with a year ago, according to the latest statistics from the Air Transport Association. In May and June, it fell 11.8 percent and 12.8 percent, respectively.

"The fare reductions are ostensibly working, at least in stimulating passenger demand," said Linenberg, noting that passenger volume was down 1.9 percent in July, compared with a 4.1 percent decline in June. "Of course, a full plane of lower quality airfares does not necessarily ensure profitability."

With airlines reporting steep losses in the first and second quarters because of curtailed spending by business travelers and higher costs for labor and fuel, the stocks of major airlines are down roughly 20 percent since January.

Unless the U.S. economy perks up, analysts expect quarterly losses to continue into 2002.

"We have to at least allow for the possibility that the industry will lose money next year as well," said UBS Warburg analyst Samuel Buttrick, who called the July revenue shortfall "very serious stuff."

Still, there is some evidence that business travelers may be coming back.

On a year-to-year basis, the number of business travelers in July declined by 17.7 percent, compared with declines of 22.4 percent in May and 20.3 percent in June.

But analysts said it is too soon to take that trend seriously.

"Until we are in a more business-intensive travel month, (such as) October, we don't think any slight improvement in the trend represents a meaningful shift in business traveler demand," Linenberg said.