Transportation

U.S. Airlines to Better Withstand the Crisis than Global Carriers

The U.S. airline industry, after swinging through the doldrums of the global economic recession, is expected to fare better than most of the foreign counterparts this year. Companies are trimming unprofitable routes and taking steps to improve their financial situation as the economy begins to rebound.

This is evident from the improvement in monthly revenue passenger miles and revenue freight data reported by The Bureau of Transportation Statistics. Domestic revenue passenger miles increased by 7.0% month-over-month in July 2009 and the international revenue passenger miles rose 10.8%.

Leading airlines, such as Continental Airlines, reported that declines in premium traffic, a good proxy for higher-margin tickets such as business and first-class, were beginning to slow while Delta Air Lines and United Airlines noted that costs had started declining due to lower fuel prices. Many analysts also expect the losses incurred by U.S. carriers to be less steep compared to their foreign rivals. The Arca Airline Index, which comprises approximately 70% of U.S. passenger airline companies, moved to its highest level since July 2008 on signals of improved demand.

U.S. air carrier revenue freight ton miles rose by 5.7% in the domestic cargo segment, and by 9.4% in the international segment for the month.

To mitigate the impact of recession, many U.S. airlines had adopted cost-cutting measures such as job and wage cuts, and early retirement options for some employees. After major airlines like American Airlines and Continental announced plans to charge economy passengers a fee to check a second bag, many U.S. airlines have now decided to introduce a new holiday surcharge to boost their sagging revenue.

It is projected that U.S. airlines will incur a loss of $2.6 billion this year, which is much narrower than the $9.5 billion loss in 2008. Recently, many companies are looking for ways to mobilize cash. United mentioned that it had liquidity initiatives on tap for the fourth quarter whereas Continental announced a stock sale last month. American Airlines also stated that it raised $2.9 billion in cash and financing and would focus on more profitable routes.