It’s a rum world when your definition of “getting better is “not getting any worse. That though is the cheering view of many CEOs from the world’s top airlines. “Some momentum off the bottom, sings Glenn Tilton from United Airlines. “A flattening out . whistles Jeff Smisek of Continental.
I heard all of this at Newark Liberty International Airport last week where I joined the jamboree celebrating the arrival of Continental Airlines into the Star Alliance. Continental becomes the 25th full member of Star. It is unique in being the only major airline to have switched alliances, having previously been in Skyteam. At this point regular readers will know that as a self professed airline geek I am just warming to my subject . so I shall try to get back to the point.
IATA, the aviation body, has depressingly but confidently forecast that the industry will lose $11 billion in 2009 on top of the $16 billion lost last year. All airlines have watched their revenues collapse. For instance Continental saw its third quarter revenues down 20 percent on last year. “Tell me about it . said Continental’s President and CEO-elect Jeff Smisek, reminding me that as revenues collapsed, capital costs for planes remained fixed.
It gets worse. When we do fly, we are paying less for our seats. The so-called yield is horrible. There may be fewer planes flying nearly full, but, the airline is actually making less money in the process. Think about it. When did you last buy a full fare refundable ticket? We are staying Saturday nights, using throw-away returns, booking online.
So every CEO is looking for signs that this is changing when there will be a return to some sort of pricing power. Glen Tilton the CEO of United Airlines, says “each month is a little better, in all markets we are seeing some improvement.
Singapore Airlines CEO, Chew Choon put it another way: “Demand has stabilized, he noted cheerfully, then dashed rising hopes by adding: “But it is too early to say whether this recovery will be sustained for much longer. So much for the good news.
Jeff Smisek at Continental summed it up “as not seeing any continuing degradation. And then put to rest any nonsense of recovery with a sharp “we are not seeing any kind of significant improvement in business travel. In other words – things aren’t getting worse, so in the aviation world, that is an improvement.
In an industry where so much is dependant upon the wider economy, the future depends on how quickly sustainable growth returns. “I don’t think we are going to see a W in terms of the recovery, says Glenn Tilton at United, “I think we are going to see a gradual U shape. If this is the case, then major airlines will survive even with oil rising above $80 a barrel. “If you’re asking do I see anyone going bankrupt, I do not, Smisek at Continental confidently predicted. “I don’t see anyone going into the tank this winter, he added.
As the year comes to an end, airline CEOs who have experienced the toughest trading conditions believe the worst is over. Having cut planes, routes and staff there really isn’t much more they can do except wait for the economic recovery. When it comes they are confident they will benefit from the “tremendous preparation for the upside, according to United’s Tilton.
In the meantime, when asked if things are getting better they have simply changed the words. Things are getting … because they aren’t getting worse. Now, a window or an aisle?
Tune in to Richard Quest each weekday at 9 pm Cairo (9 pm Kuwait, 9 pm Riyadh, 10 pm Dubai) on Quest Means Business. For more information go to www.cnn.com/qmb.
