What Does 2009 Mean For The Airlines?
As we approach the end of 2008, I want to take a moment to reflect back on the year as it pertains to the airline industry and share some predictions for what 2009 has in store for them.
2008 was a rough year for the airlines. Eight of them went into bankruptcy protection and/or shut their doors. Fuel prices reached a record high of $145.85/barrel this summer. Since July, fuel has fallen 74%. Some airlines are now losing money on hedges because fuel prices have dropped more than expected. Like I said, it’s been a tough year.
But what does it all mean for 2009? Surprisingly, U.S. airlines might actually realize a tiny profit in 2009, assuming fuel prices remain relatively low (which they should, since a recession suppresses demand for oil). The International Air Transport Association (IATA) is predicting that North American airlines will turn a small profit in 2009 of about $300 million. This is obviously chump change for the cumulative U.S. airline industry, but compared to their prediction of a $2.5 billion loss for carriers worldwide—this is a cause for celebration!
Airlines will partially experience a negative impact from the recession, particularly those that specialize in leisure destinations or drive substantial business from the banking segments in New York City and London. On the flip side, airlines have had the uncanny knack for raising money amidst all the doom and gloom of this year. As The Wall Street Journal recently reported, Delta will receive $2 billion through 2010 in cash from it’s co-branded credit card partner, American Express, as part of their partnership (probably pre-purchasing a boat load of miles). Ditto for United and Chase Bank. American Airlines raised nearly $2 billion from stock sales and selling off a money-management unit. Southwest unloaded (either by selling or leasing back) 10 of its planes to the tune of $2 billion cash. Airlines are clearly trying to reinforce their cash reserves in case the recession has a big impact on sales or if the cost of fuel climbs back to mid-2008 levels.
The Journal pins low fuel costs as the reason “both investors and airline partners are betting the carriers will be able to generate positive cash flow even as travel demand falls in the recession. Some analysts expect U.S. carriers to be profitable next year, thanks to the cheaper fuel, shrinking route networks, and an influx of new revenue, such as fees for checked bags.”
The upside for travelers? The crappy economy may result in the airlines reducing fares on some routes. And we should see some bargains for International travel, particularly due to the new found strength of the U.S. dollar.
One thing is for sure: 2009 is gonna be interesting. :)
Have a Happy New Year!
