LP AV Market Review February 2009. 2 Key topics Indicators : –Dramatic fall in air traffic in...

LP AV

Market Review

February 2009

2

Key topics• Indicators:

– Dramatic fall in air traffic in January

• IATA forecast:– “Demand for air transport continued to decline during January 2009, with no sign as yet of a bottom in

the recent precipitous fall”.

• OEM– Deterioration in the backlog and reduction in production.

• Client info: – IBERIA shows positive results for its 13th consecutive year, appearing as unique in the current turmoil– Crisis hits Asian airlines with major risks of bankruptcies and shift to low cost model

– “Desperate to sell seats on increasingly empty jetliners, (North American) airlines are slashing airfares to prime overseas destinations in Europe and Australia”.

Information sources:

• Speednews – Main source used when no reference mentioned

• Bulletin hebdomadaire d’informations Michelin and Bibznews - Collection of articles published in different newspapers/magazines – Information will be reported with accurate reference (mainly in french)

• Weekly reports from Zones – Quoted as “Internal info”

Periodicity

• LP AV Market review will be issued 1st week every month

LP AV – Market Intelligence – JP GrandMarch 19, 2009

3

Indicators

Source: Banque de France

Source: IATA

Source: IATA

Source: Pricing Dept

Parité Euro-USD(2/01/08-27/02/09

1,21,31,41,51,61,7

02/0

1/20

08

02/0

2/20

08

02/0

3/20

08

02/0

4/20

08

02/0

5/20

08

02/0

6/20

08

02/0

7/20

08

02/0

8/20

08

02/0

9/20

08

02/1

0/20

08

02/1

1/20

08

02/1

2/20

08

02/0

1/20

09

02/0

2/20

09Monthly Evolution EMA & NAM CPI

(01/08-01/09)

4,00%

6,50%

9,00%

11,50%

08 J

anua

ry 08

08 M

arch

08 A

pr

08 M

ay

08 J

un

08 J

uly

08 A

ug

08 S

ept

08 O

ct 08

09 J

anua

ry

EMA CPI

NAM-FEO CPI


4

Traffic analysis – January 2009 – Source: IATA economics – 24/02/09

• KEY POINTS – Demand for air transport continued to decline during January 2009, with no sign as yet of a bottom in the

recent precipitous fall. International passenger travel, measured by revenue passenger kilometers, fell by 5.6% in January following December’s 4.6% decline. Air freight, measured by freight tonne kilometers, slowed its speed of decline from December’s collapse but at a level 23.2% lower than the same month last year remains alarmingly weak.

– Cargo revenues are only around 10% of total airline sales but represent some 30% of tonne-kilometers flown and, more importantly, are important contributions to wide-body passenger aircraft, as well as freighter, profitability since empty hold space cannot be filled with passengers. So the collapse in air freight volumes is having a large impact on many network airlines profitability.


5

• KEY POINTS – Airlines in the Asia-Pacific region are suffering the largest falls in both passenger and freight volumes which

are down 8.4% and 28.1% respectively in January. This reflects the severity of the recession and what is being described as ‘deglobalisation’ with shrinking international trade hitting this region more than most. However, results for airlines in other major regions Europe and North America are also weak, with fall in passenger travel of 5.7% and 6.2% respectively coupled with double-figure declines in air freight. Only in the Middle East is there any growth.

– The weak start to the year implies a bleak outlook. Even if passenger travel stabilised at January levels that would leave average travel for 2009 some 4% below 2008 levels. If air freight stabilised at January levels the average for 2009 would be 18% lower. Of course economic recovery could improve these figures but if a turnaround does not occur before early 2010 as some are predicting then our current 2009 forecasts for a 3% fall in passenger travel and a 5% decline in freight are now looking rather optimistic.

Traffic analysis – January 2009 (cont’d)


6


• INTERNATIONAL PASSENGER TRAFFIC DOWN 5.6% – Passenger volumes have now been falling at a steadily increasing pace since the Spring of 2008, judging by the

seasonally-adjusted data in the chart below. The decline in air travel accelerated after the September bankruptcy of Lehman Brothers marked the entry into a new much more severe stage of recession. By January this year international passenger kilometers flown by IATA-member airlines had fallen to a level 5.6% lower than the same month the previous year. Looking at the seasonally-adjusted change over the month travel was shrinking at an annualized rate of 7-8% in January.


7


• INTERNATIONAL PASSENGER TRAFFIC – Analysis by region– Airlines in the Asia-Pacific region continue to suffer the largest declines with passenger travel down 8.4% in

January. This was a little less of a decline than the 9.7% fall in December but there may have been some distortions from the Chinese New Year occurring in January this year, rather than February, temporarily boosting travel. Certainly economic conditions in the region have deteriorated dramatically with forecasts for the Japanese economy now predicting an unprecedented 5%+ decline this year.

– North American airlines suffered the second largest decline in passenger traffic, having only a short time ago seen international markets as a substantial and profitable expansion opportunity, with a 6.2% decline in January. Travel across the Pacific has fallen sharply, due to recessions or sharp growth slowdowns at both ends of this market, while the crisis in the banking industry has meant a large downturn in traffic across the Atlantic.

– European airlines are now facing the impact of their own economies moving into deep recession, later into this severe down-cycle than the US economy. As a result traffic fell considerably more in January, by 5.7%, than in December when there was a 2.7% contraction. Data for the first half of February recorded by the AEA suggest the situation is worsening with traffic now falling at a rate close to 10% a year.

– The region that is bucking this trend decline is the Middle East, where airlines carried an additional 3.1% of passenger kilometers, following growth of 3.9% in December. However, even this region is suffering from the global downturn and more recently a fall in oil revenues; economic growth is now forecast to fall from 5-6% last year to less than 2%. The 3% or so passenger growth being achieved by Middle Eastern airlines is considerably slower than the 18% expansion achieved as recently as 2007.

– African airlines saw their traffic fall 2.6% in January; not quite as bad as the 4% average decline during 2008. However, considering that the region has been one of the few origin-destinations generating positive traffic growth in recent months this is a disappointing performance.


8


• AIR FREIGHT VOLUMES COLLAPSE TO NEW LOWS – Air freight volumes hit a new low in January, at a level 23.2% lower than the same month last year. This

follows the precipitous fall in December. The only possible positive sign in the data was that, once seasonally adjusted since January is always a weak month for air freight, the volume of air freight appeared to hold at December levels, as shown in the chart below. It might be thought that this is a sign that the bottom has been reached. Forward-looking indicators such as the US purchasing managers index and the German IFO index did turn up in January and February. However, manufacturers are still shedding inventory and cutting production further, which will lead to additional falls in air freight. It is too early to call a bottom in the air freight market.

– Even the Middle Eastern airlines are failing to prevent the air freight they carry from shrinking. There is a uniformly dismal picture for air freight across the regions.


9


• LOAD FACTORS DOWN AS FALLING DEMAND OUTPACES CAPACITY CUTS – Airlines managed to shed 2% of their passenger capacity in January, following a 1.5% reduction in December.

However, cutbacks in fleet and frequencies have failed to keep pace with the fall in demand. As a result load factors continue to decline. On international markets in aggregate the average load factor was 2.8% points lower in January than the same month the previous year.

– There is much regional variation in performance. The largest fall in load factors was for Middle Eastern airlines who, bucking the trend, expanded capacity by 10.8% in January but suffered a 5.4% point fall in load factors. Airlines in Asia-Pacific are cutting capacity but due to the scale of the decline in demand saw load factors fall 3.3% points in January.


10

OEM infoBOEING• Backlog:

– The order backlog totaled 3,666. • 2,263 for the 737, • 112 for the 747 (six 747-400ERF/Fs and 106 747-8/8Fs), • 69 for the 767, • 343 for the 777, and • 879 for the 787.

– This is a decrease compared to the YE 2008 backlog, which had totaled 3,714. • Orders:

– LCAL, an aircraft leasing company operating out of Dubai, will cancel 16 of 21 orders it has made for Boeing's 787 Dreamliner. (Fcst Intl.)

– Russia's S7 Airlines canceled a long-term 787 order for 15 aircraft in January

EMBRAER• 2009 production and deliveries of the E-Jet Family, the 170/175 and 190/195, are set to be reduced by nearly

30%. – Embraer are reducing monthly build rates from 14 per month to less than 10 per month. – In 2008 159 E-Jets were delivered, the figure for this year is set to be approximately 110.

LP AV – Reiner OttMarch 19, 2009

11

OEM info (cont’d)AIRBUS• Backlog:

– The order backlog for Airbus totaled 3,673.• 16 for the A318, • 385 for the A319, • 1,901 for the A320, • 257 for the A321, • 422 for the A330, • 24 for the A340, • 483 for the A350, and • 185 for the A380.

– This is a decrease compared to the YE 2008 backlog, which had totaled 3,715• Orders:

– Korean Air has placed firm orders with Airbus for two more double-deck A380 aircraft. This brings the total number of A380s ordered by Korean Air to 10 aircraft

BOMBARDIER • Production of Bombardier's slow-selling Q200 and Q300 turboprops is expected to end mid-2009, while the 70-

passenger Q400 is poised for a production increase.


12

OEM info (cont’d)MILITARY• The Indian Air Force announced that flight trials for its Medium Multi-Role Combat Aircraft competition are scheduled

to begin mid of this year. – Six different fighters are competing for the 126-aircraft contract

• F-16, • Saab Gripen, • F/A-18E/F, • Rafale, • Eurofighter, • MiG-35, a new upgraded variant of the MiG-29.

GULFSTREAM• GULFSTREAM REDUCING PRODUCTION

– General Dynamics announced this week that, as a result of deterioration in the backlog, particularly during the month of February, and continued weak demand, These cuts will result in a workforce reduction of 1,200 workers, including ~550 contractor personnel.

– Large-cabin aircraft production and green-aircraft deliveries for 2009 have been cut from the originally projected rate of 94 to 73, and mid-size aircraft from 30 to 24; the total output will be 97 aircraft. The cuts are aimed at stabilizing its backlog of aircraft orders and level-load production over 2009 and 2010.

– In 2008, Gulfstream delivered 156 aircraft, including • 68 G150/G200 jets and • 88 G350/G450/G500/G550 jets.


13

EMA Top 40AIR FRANCE-KLM:

• Reported net loss of €294m for 3rd quarter ended Dec 31 (vs €190m profit a year ago). It cited fuel hedging costs as major factor.(Sp 13/02/09)

• First A380 aircraft is scheduled for delivery in October 2009.(sp Feb 20th) but is expected to defer delivery of its 6th and 7th (of 12) A380s to reduce capital expenditures from scheduled down payments. It is scheduled to take delivery of its first three by end 2009/early 2010. (Sp04/03/09)

• Is deferring delivery of about five new Airbus/Boeing aircraft (types TBA) by about 2-3 years. (Sp Feb 16th)• Will be the first operator of Boeing 777-200LR Freighter and is due to take delivery this month. Emirates is shortly to take

delivery of its first Boeing 777-200LR Freighter too. (ACAS News bulletin 12/02)

IBERIA• Recorded profit of €32m for 2008, its 13th consecutive year of positive results, although operating revenues slipped 1.3%

from 2007(Sp 27/02/09). Net profits dropped about 90% last year, as high fuel costs and flagging demand offset efficiency gains.

• Will reduce the number of flights and has decided to postpone the delivery of 3 new A340’s.• Merger between Vueling and Clickair (Iberia owns 20% of equity) should be finalised by this summer, Ceo said

EASYJET:• Deferred two A319s scheduled for FY10 and may reduce current plan to operate fleet of 185 aircraft in FY10 (177

A320s/eight 737s) and 197 (195/two) in FY11. It had 75 A319s and 25 A320s on order at start of 2009 (Sp 03/02/09).

LUFTHANSA• Now expects slightly better operating result than forecasted due a more stable 4Q08 (sp 03/02/09)

LP AV – EMA Zone marketing – Eve SchiroMarch 19, 2009

14

Rafale : Waiting for Brazil’s decision • Dassault Aviation, Saab and Boeing, replied to the Request For Quote from the Brazilian Air Force regarding the acquisition

of 30 to 40 fighters. Brasilia should make a decision during the second quarter of 2009 (5 février 09 - Les Echos. Synthèse presse GIFAS 05/02/09).

SAS GROUP• Plans to cut SCANDINAVIAN AIRLINES shorthaul fleet by 10% (14 aircraft) and longhaul fleet by 18% (two) (sp 03/02/09) • As a part of the “five pillars” on which the Core SAS plan rests, the group intends to divest Spirit, Air Greenland, BMI,

Estonian Air, Skyways, Cubic and Trust, in addition to the already divested Spanair and airBaltic. This will allow for more focus on the Nordic home market, as well as improved cash flow and leverage. It also intends to close unprofitable routes, and specifically focus on business travelers. On short and medium-haul routes, the Scandinavian Airlines aircraft fleet of 144 aircraft will be reduced to 130 aircraft. On long-haul routes (outside Europe) the fleet of 11 aircraft will be reduced to nine.(sp 06/02/09)

XL Airways (maintenance done by Air France) • The French airline is likely to be bought by the end of February. It carried around one million passengers last year. Four

potential buyers are interested, including Aigle Azur airline. (Les Echos-La Tribune-Le Figaro (Synthèse presse GIFAS 06/02/09)

Turkish Airlines • Is one of the few non-Gulf carriers which are still expanding. It is shortly to take delivery of two former Qatar Airways (Qatar)

operated Airbus A330-200s. This month it also took delivery of two new Airbus A321s and will receive another two next month, which were originally ordered and built for Kingfisher Airways (India). (ACAS News bulletin 12/02)

EMA Top 40 (cont.)


15

EMA-Other market info customer/prospect

VUELING and CLICKAIR:Both received Board approvals to merge and form single Barcelona-based airline (A320s) named Vueling owned by Iberia (40-45%), Air Nostrum owner Nefinsa (5%), Vueling shareholder Inversiones Hemisferio (15%), and private investors .(Sp Feb 20th)

EMIRATESPlans to increase pax capacity by 14%/cargo capacity by 17% year-over-year for fiscal year ending March 2010, taking delivery of 18 aircraft, including seven A380s, 10 777-300ERs, one 777-200LR and one 777 Freighter; it currently has 129 aircraft (Sp Feb 20th)

RYANAIR• Lost €102m on €604.5m revenues in third quarter ended Dec 31 vs €35m profit on €569.4m a year ago. (Sp 02/02/09)• Ordered 13 more 737-800Ws for 2011, and now has 156 on firm order. It plans fleet of 292 end 2012 vs 163 end 2008.• Is in early negotiations with Airbus and Boeing to order 200-300 narrowbody aircraft over the next decade (Sp 06/02/09)

ETIHAD Etihad expects 2009 revenue increase of 24% to $3.1 billionEtihad Airways CEO James Hogan said the carrier is targeting a 24% year-over-year increase in 2009 revenue to $3.1 billion as it takes delivery of 11 new aircraft, bringing its fleet to 53 (…) Hogan has said that Etihad is not currently considering joining an alliance, and he added this week that it is not interested in participating in consolidation either. "No, we are not looking at equity. Our strategy is to build our own airline business, with hotels and other divisions, such as the holidays division," he said. (Thursday March 5, 2009 ATWonline.com)


16

EMA MiscellaneousAirport Traffic• PARIS-CDG passenger traffic down 6.5% vs Jan '08; ORLY passenger traffic down 10.7%. Total movements fell 8.3%.(sp Feb 20th)

• UK airport passenger numbers drop 6.3% BAA, the airport operator, handled 9.4m passengers in January, a 6.3% decline from the same month in 2008 as demand for air travel continued to fall and airlines cut capacity (FT Feb 11th)

Business Jets« Decrease in Aircraft Production »:For the last four years, business jets have known a very high demand. 2009 is bound to be much tougher and major aircraft manufacturers are announcing restructuration plans. Thus, Dassault Aviation presented last Thursday, « a new production plan reduced by 25% from now until 2011 (...)" according to the French newspaper Les Echos. Overseas, Cessna is going to cut production and jobs by 20%, representing a loss of 2000 jobs, Bombardier announced a cut of 1360 jobs and Gulfstream is expecting a drop of 21% of its aircraft deliveries. (6 février 09 - Les Echos - La Tribune - Le Figaro. Synthèse presse GIFAS 06/02/09)


17

FEO: Industry AnalysisGeneral comment: The Asian airline industry faces a risk of bankruptcies and an accelerated shift to the low cost model

after the global slowdown’s savage arrival in the region. The big full service asian carriers has announced service cut back with the Southeast asian carriers planning a remarking 11% reduction in capacity.

• Qantas is raising the possibility of canceling the first 15 of its order for 65 Boeing B787s. Also Qantas will cut back services to China and India and its mainlines operation will quit the New Zealand domestic market entirely . Instead , JetStar will take over

New Zealand routes.

• Singapore airlines is expected to announce the ground of 17 A/C from its operational fleet in ist coming finanacial plan. Most will be early 777s and 747-400s.

• Japan Airlines says it may ask for a government loan reportedly 200 billion yen ( $2.1 billion) to refinance maturing debt. It expects to report a loss of 37 billion yen for the year end Mar 31,2009 and plans to cut costs by 50 billion yen for the following

year, although that would be the equivalent of only 2.5% of revenue.• Virgin Blue, whose business model lies between no-frills and full service, will cut capacity by 8%, ground 5 aircraft and

eliminate 400 jobs.• Air India ,National Aviation Company of India – parent of Air India,has asked for a USD 798 million government bailout.

• Kunpeng will return remaining 5 CRJ 200’s to Mesa Group in May. Have reduced the delivery plan of ERJ 190 for 2009 from 5 to 2 aircraft (additioanl 3 delayed)(WR 05 -3-09).

• Malaysia Airlines will continue to implement tough cost-saving measures this year, despite having posted a MYR244 million (US$66.8 million) net profit last year. Bernama reported that MAS aims to achieve between MYR700 million and MYR1 billion in cost savings this year, with measures including a 7% budget cut across-the-board, a freeze on all recruitment, discretionary training and traveling, stopping discretionary expenditure and the prioritization of projects that are considered most profitable.

• China Eastern Mr. Ma Xu Lun, New President of the airline announced in a press conference that CES will reduce by one half the number of aircraft expected to be added to the fleet. The original 2009 plan was for the induction of 29 aircraft

meaning that approximately 15 aircraft will be delivered in 09. • Thai Airways: lost THB21.3b in 2008 – USD 597 million (vs THB4.4b net profit in 2007) on 1.6% higher revenues.

LP AV – FEO Zone marketing – Artika TanapongpipatMarch 19, 2009

18

FEO: Market Overview

• The global slowdowns is effect in Asia is evident from last month’s traffic result: down 6.9% from a year earlier.

• Asian Carriers led the decline in passenger demand, with 8.4% lower than last year (YoY) which was better than the 9.7% contraction in Dec-08. The positive result is from Chinese new year which fell at the end of January 09.

• A second point of vulnerability for Asian airlines is the result of their famously high service standards. Providing excellent services and enjoying strong revenue from first and business-class passengers which seem to be the first one to decline. Due to the global economic downturn, Businesses need to seek to cut cost in response to the situation.

ACI Asia Pacific airports passenger numbers growth: Feb-08 to Jan-09IATA international passenger traffic (RPKs) by region: Feb-08 to Jan-09

Source: Centre for Asia Pacific Aviation & IATA

Source: Centre for Asia Pacific Aviation & ACI


19


• The cargo sector is facing significantly severe downturn which also is a major problem due to Asian carriers’heavy dependence on cargo, which accounts for 20% of their revenue. The collapse in world trade is having a severe impact on airfreight demand, forcing airlines to cut back the freighter capacity and temporarily grounding a number of delicated freighter aircraft.

• Their international fright traffic, fell even faster than passenger business, was 26% weaker in December than a year eariler and further declined in January 09 (YOY).

IATA international freight traffic (FTKs) by region:

Feb-08 to Jan-09

Source: Centre for Asia Pacific Aviation & IATA

ACI Asia Pacific airports cargo volume growth (% change year-on-year): Feb-08 to Jan-09

Source: Centre for Asia Pacific Aviation & ACI


20


• Although the economic situation has an impact on all over Asian carriers, its greatest impact is on the legacy model. The opportunity goes to the strong low cost carriers. Asia’s adoption of the low cost

model has already far exceeded the expectations of six and seven years ago and will be accelerated due to the current crisis .

– Airasia secured financing from Barclays Capital for 15 A320s on order for delivery through early 2010.(25-02-09)

– Airasia X is forging ahead with its expansion, It will launch a service from Kuala Lumpur to London next month and another to Tianjin, China in April. The company is looking for 4 A340/300s to sustain growth.

– Jetstar is substituting for Qantas for full service mainline operations in New Zealand.

– Tiger Air, the Australian operation, is launching its Adelaide HIB increasing frequencies from 14 to 44 per week.


21

NAM Top 40Boeing

• Boeing Co. won orders for three 777s last week, bringing aircraft bookings so far in 2009 to 22, or less than an eighth of the 190 total in the year-earlier period," Bloomberg reports. The weakening economy last year snapped three record years of demand with orders declining to 662 from 1,413 in 2007."

• Including the previously announced cancellation of 32 planes earlier this year, Chicago-based Boeing has a net loss of 10 orders so far in 2009, Bloomberg reports. "The company, the world’s No. 2 commercial-jet maker, said in its weekly online order update today that Air New Zealand agreed to buy one 777 last week and that an unidentified customer ordered two more of the long-range plane. The orders are valued at a total of $738 million at list prices." --Rebecca Heslin

Frontier• Frontier Airlines Holdings has received a firm commitment for $40 million in post-petition debtor-in-possession (DIP) financing

from Republic Airways Holdings, an airline holding company based in Indianapolis, Ind. The DIP facility is subject to bankruptcy court approval and other pre-closing conditions.Upon court approval, Republic will provide immediate funding of $40 million to refinance the expiring DIP facility and to support Frontier's additional working capital needs. Furthermore, as a condition to the loan, Frontier has agreed to allow Republic a stipulated damage claim in the amount of $150 million.Frontier and its subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code on April 10, 2008. The Company received a total of $30 million in DIP funding from Republic as well as Credit Suisse Securities and AQR Capital in August 2008. The Company will retire that debt by the end of March.

JetBlue• JetBlue Airways reported that its traffic in February decreased 8.3% from February 2008, on a capacity decrease of 5.5%. Load

factor for February 2009 was 74.5%, a decrease of 2.3 points from February 2008.

Northwest• On a combined basis, Delta and Northwest' traffic in February 2009 decreased 11.0% compared to February 2008 on a 7.8%

decrease in capacity, and load factor declined 2.7 points to 74.3%.

LP AV – NAM Zone marketing – Christa WilliamsMarch 19, 2009

22

NAM Other DELTA AIR LINES • Delta just announced that it will trim capacity this fall. That caps weeks of predictions by industry observers and analysts that

the industry could begin another round of contraction if demand remained worse than expected as the worldwide financial crisis drags on. As for Delta, the world's largest carrier "said Tuesday it would cut its international capacity by an additional 10% starting in September as the global economic downturn batters the industry.“

• While Delta's plans for the 787s it has on order may be getting most of the attention (see below), there has been other news involving the carrier's fleet. The Atlanta Journal-Constitution writes that "as Delta Air Lines shrinks its operations, it sold 20 of its planes last year and has agreed to sell most of the Boeing 737-800 jets it has on order. The sold aircraft include seven CRJ-100 regional jets, five Boeing 757-200s, four Airbus 320-200s and four DC 9-30s. … The sale of the planes generated $123 million in proceeds, with a profit of $21 million.“

• Delta has returned some other planes to their lessors and that "nine of its aircraft are temporarily grounded or held for sale." But while Delta is paring some aircraft from its fleet, it is making a few additions. The Journal-Constitution says the carrier has added five Boeing 737-700s, four Boeing 757-200ERs and two Boeing 777-200LRs.

• Almost a year after Delta Air Lines announced it would buy Northwest Airlines and become the world's biggest carrier, fliers will soon start seeing the first outward signs that the two carriers are becoming one. By the end of March, all the "Northwest" signs at Northwest's longtime hubs in Minneapolis, Detroit and Memphis will be replaced by Delta signs and Delta's bright red triangular logo. And pilots, flight attendants, ticket agents and gate agents of both airlines will be outfitted alike in Delta uniforms.

AirTran• AirTran CEO Bob Fornaro said today that he expects the low-cost carrier to turn a profit every quarter this year,

The Associated Press reports. "I think that will be a rarity among carriers," Fornaro is quoted as saying at the Raymond James Institutional Investors Conference. AP adds "Fornaro reiterated that the airline will cut capacity about 4% this year, capacity will be flat next year and the airline … expects to grow in 2011. Fornaro said AirTran has been able to maintain a low-cost advantage over competitors even though it has been shrinking."


23

General & Forecast Trends• The Chicago Tribune reports "Desperate to sell seats on increasingly empty jetliners, airlines are slashing airfares to prime

overseas destinations in Europe and Australia."• The drop in fares come as airlines try to balance keeping planes full while not letting the bottom fall out of fare levels. Airline

operations reports sharp declines in traffic as carriers slashed capacity. Most troubling for the airlines, however, was the shrinking load factors, which measure how full a plane is. American Airlines, for example, said its load factor was 73.9%, down 2.9 percentage points from February 2008. Continental Airlines reported a load factor of 72.9%, a decline of 3.1 percentage points from a year ago.“

• Strong yield growth for the fourth quarter masks some disturbing trends. The Air Transport Assn. reports that major airlines' domestic yields weakened through the quarter: October saw 7.4% year-on-year growth, but the increase was just 1.2% in November. December actually saw a 0.4% decrease, which was the only monthly yield decline in 2008.

• Most airlines are also seeing advance bookings running slightly behind last year's levels. Travelers are generally booking much closer to the date of their trips, a trend airlines began noticing late last year.

• Capacity cuts are the most effective weapon the airlines have to combat revenue and cost pressures, and they have pursued this option with vigor. Carriers are shrinking their fleets through aircraft retirements or order deferrals, and have been shedding thousands of employees at the same time.

• Thanks in large part to drastic cuts made in the fourth quarter, most carriers predict mainline domestic capacity will be down by around 10% this year. The latest forecasts show that many carriers are slicing capacity plans even further.

• American Airlines, for example, is using Boeing delivery delays as an excuse to do more pruning. The airline was expected to take delivery of 36 Boeing 737-800s, but will now receive only 29. American says it will not use its MD-80s to make up the shortfall, and this will raise its mainline domestic capacity cut by one point to 9%. United Airlines sees its domestic capacity declining by about the same amount. The carrier is following through on last year's plan to shed 100 aircraft by the end of 2009, about half of which has already been achieved.

• After being hurt by high oil prices, airlines are now being hurt by prices that have fallen below the level of their fuel hedges. Not only are carriers missing the full benefit of lower fuel prices, they are also being forced to post hundreds of millions of dollars in hedge collateral. At the end of 2008, Delta had $1.1 billion tied up in hedge collateral, and United only slightly less.


24

General & Forecast Trends con’t.• Recognizing the additional pressure on liquidity, carriers are doing everything they can to boost their cash position, by

drawing down credit lines, selling frequent-flier miles in advance to mileage partners, and sale-and-leaseback arrangements.

Airline Q4 NET PROFIT/(LOSS)

Q4 PROFIT/(LOSS) Full-year 2008

excluding special charges

NET PROFIT/(LOSS)

DELTA* ($1.4 billion) ($340 million) ($8.9 billion) AMERICAN ($340 million) ($214 million) ($2.1 billion) UNITED ($1.3 billion) ($547 million)** ($5.3 billion) CONTINENTAL ($266 million) ($96 million) ($585 million) US AIRWAYS ($541 million) ($220 million) ($2.2 billion) SOUTHWEST ($56 million) $61 million $178 million * Includes Northwest earnings from Oct. 31

** Pre-tax

Sources: Airline reports


25

Goodyear advertisement


• Latest Goodyear communication published in Aircraft Industry magazines

• If you want more details, please contact Dave Barraco

LP AV Market Review February 2009. 2 Key topics Indicators : –Dramatic fall in air traffic in...

Documents

Transcript of LP AV Market Review February 2009. 2 Key topics Indicators : –Dramatic fall in air traffic in...