Emerging from the best traffic month they’ve seen in the past year and a half, airline executives are eyeing 2010 with a glint of optimism that’s been missing since the oil-price hikes of mid-2008.
Despite some industry analysts’ warnings that the recessionary storm could be far from over, some carriers are even talking about possible targeted market expansions in the coming year.
Continental, Southwest, JetBlue, Alaska and AirTran all reported increased traffic year over year (as measured by revenue passenger miles) in November.
Southwest had the largest increase, 11.7%, followed by AirTran with 10.5%. JetBlue’s traffic rose 7.7% and Alaska’s grew 5.5%. Continental inched up 2.7%.
Delta, American, United and US Airways reported traffic drops for the month, but, significantly, those drops were not as deep as the carriers had suffered in earlier months.
Combined, the major airlines reported an overall increase of 0.2% for the month.
As slight as that might be, any broad-based increase after months of declines is a welcome sign. As a group, the major airlines had seen an estimated 9% drop in traffic through the first three quarters of the year, according to the consultancy AirlineForecasts.
In addition, airlines again reported another month of strong load factors for November. All but one, US Airways, reported flying fuller planes last month.
"The worst is behind us," AirTran Senior Vice President and CFO Arne Haak told analysts last week during the Next Generation Equity Research investors conference in New York. "The industry backdrop going forward looks pretty good."
Others agreed.
"I anticipate demand to remain strong," Delta CFO Hank Halter told analysts at the conference. "There’s not an absence of demand in terms of willingness to travel."
American Vice President and Treasurer Beverly Goulet told the investors group that the airline was even starting to see more promising traffic and bookings from the coveted premium and business travel sectors, the traffic that usually provides airlines with their highest yields.
Indeed, Continental’s senior vice president and treasurer, Gerry Laderman, told analysts, "The story of recovery will be the pace at which business travel picks up."
Moreover, United CFO Kathryn Mikells said the recent pickup in business travel was helping airline revenue. "Revenue results are improving as overall demand strengthens and, more importantly, as business travelers return," she said.
Analyst Darrin Lee of the LECG consultancy warned that it was still too early to determine if the economy and airline industry are truly on the mend.
"Until we see actual job growth, we won’t see a big rebound in traffic," Lee predicted.
The country’s unemployment rate dropped slightly, to 10%, in November, although some economists said that might be a blip and that later months could see higher rates.
"Last month’s unemployment numbers were a start, but it’s still too early to tell if it was a one-month anomaly or the start of a turnaround," Lee said. "That being said, I think most would agree that we seem to have avoided a complete, all-out financial meltdown."
Some carrier executives said they shared Lee’s cautious approach to the state of the industry right now, especially when it comes to business travel.
"I don’t think it’s gotten worse over the last several months," Southwest CEO Gary Kelly said of business travel at last week’s conference. But, he added, "It still lags."
Kelly said he did not expect a rebound in business travel for 2010.
Indeed, carrier executives observed that most of the increased traffic has been riding on discounts and promotional deals and that their overall revenue figures are still likely to be a bit soft for the final quarter of the year.
Although no carrier is considering a major expansion in the coming year, several are looking to add resources in targeted markets.
For 2010, Southwest expects to keep its overall capacity flat, but the airline still plans to continue growing its presence in Denver and St. Louis. Other carriers are looking to grow in key markets, as well.
Alaska, for example, will continue its shift toward the U.S. East Coast while building on its Hawaii service. The Aloha State has been a particularly pleasant surprise for the airline, said Alaska CFO Glenn Johnson, in that the traffic has proved to be more year-round than seasonal.
JetBlue and AirTran both plan to grow their Florida-based networks.
"Florida has been a boon for low-cost carriers," Haak said.
American said it could see a 1% capacity increase in its international service, but Goulet said that slight bump would be due in large part to the reinstatement of Mexico flights halted earlier this year because of H1N1 virus concerns.
Continental also is looking for a boost from its international service with new flights between Houston and Rio de Janeiro and another service linking Newark and Shanghai.
The Houston-Rio flight would link energy-market business travelers, Laderman said.
As for the new Asia service, Laderman said, "When you get access to Shanghai, you take it."
But carrier executives said they don’t plan to restore the domestic capacity the airlines began removing during the oil price hikes and have continued cutting through the recession. Airlines estimated they will have taken between 6% and 8% of domestic capacity out of the system for 2009 by the end of the year.
"It’s going to take a lot to radically change capacity upward in 2010," Delta CFO Halter said. "When I look at aircraft [parked] in the deserts, it takes a while to bring those aircraft back."