A grim economic outlook for airlines means heavily discounted fares for corporate travelers
If financially strapped airlines worldwide were hoping for a turnaround in 2009, they may be in for some disappointment. The International Air Transport Association (IATA) released a revised outlook for the airline industry for 2009 last month, and it isn't pretty.
In December, IATA predicted 2009 losses for the airline industry at $2.5 billion. That figure has grown to an estimated $4.7 billion. Industry revenues are also expected to decline by about 12 percent, or $62 billion.
"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," says Giovanni Bisignani, IATA director general and CEO.
North American carriers stand to have the best 2009, according to IATA estimates, with expected revenue of $100 million. A 7.5 percent drop off in demand will be met by a 7.5 percent reduction in capacity. African and Latin American carriers are each expected to lose $600 million this year, while European airlines losses are estimated at $1 billion. The Middle East is the only region seeing an increase in demand, but that 1.2 percent increase is overshadowed by a 3.8 percent increase in capacity.
The one piece of good news for carriers is falling fuel prices. In 2008, fuel costs accounted for approximately 32 percent of an airline's operating costs. Today, 25 percent of operating costs are tied up in fuel.
The silver lining for corporate travelers is the sudden availability of deeply discounted fares. According to airfare tracking site Yapta.com, airlines are dropping prices left and right in an attempt to fill empty seats. The average price for a one-way domestic coach ticket purchased in advance was $106 in early March, a 20 percent drop from the price of a similar ticket in July.
International flights have also been reduced, a flight from London to Chicago on United Airlines was $475.60, compared to $629.90 just a month earlier.
A study by Travelocity.com shows average fares are down 10 percent from last year. International flights are even cheaper, a flight to London is down about 20 percent from last year. Flights to Paris are cheaper by one third. Tom Parsons, CEO of BestFares.com predicts airfares will continue to slump through the fall.
—Chris Nesi
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