Industry Not Unique in Crisis

The industry does not stand out as unique in the financial crisis facing the U.S. economy meaning, as with other consumer businesses, it will see tight capital and dropping demand, LECG, LLC’s Dan Kasper told Regional Aviation News yesterday. But unlike other sectors of the economy, especially small businesses, the industry was not planning to expand having cut capacity by about 15 percent year over year by the fourth quarter. Indeed, it is like other big businesses relying on consumer demand, such as the auto industry, and has been contracting and laying off employees.
“This is unlike a lot of the industry’s crises,” said Kasper, alluding to the unique impacts of 9/11 on the industry. “They are no different than anyone else. The main impact will be seen in how the financial crises affects the economy. If the economy goes down oil goes down but so does traffic. It is hard to predict what will happen. If credit freezes up, it will affect airlines as it will most other businesses. You can look at the shuttle markets – especially Boston to New York – and see that financially related traffic is way down, about 15 percent, year over year.”
Kasper indicated that the capacity cuts already done put the domestic market in relatively good shape, especially with oil trading $50 below the high reached earlier this year. He also noted that fees area generating a lot of revenue. “There is some reason to feel pretty good about the domestic side,” he said. “That’s the thing I worry about, if demand falls more then they may end up having fare sales. They will be limited in their ability to raise fares. A steeper decline in demand is something to keep an eye out for.” Kasper noted that fees are here to stay.
He noted that U.S. airlines were latecomers to the party when it came to imposing fees with Air Canada demonstrating that unbundled pricing gives consumers a choice and increases revenues.