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US airline yield weakness continues in Sep-2009

20-Oct-2009

During Sep-2009, domestic US airline yields slumped 16.0%, a worsening from the contractions reported in the Aug-2009 and Jul-2009, of 14.0% and 14.7%, respectively, for the second largest contraction in 2009 (after Jun-2009’s 18.9% reduction). Southwest Airlines CEO, Gary Kelly, stated last week, "this is a very difficult environment to operate in".

Mr Kelly added, "cost pressures continue and particularly rising energy prices. I don’t believe the worst is behind us, if for no other reason because of higher energy costs, and there’s no reason to believe that Business travel will return anytime soon to help bail us out". See related report: Southwest Airlines SWOT: Fourth net loss in past five quarters; difficulties to continue

International yields showed signs of bottoming over the Summer, although Atlantic, Latin and Pacific yields were still down significantly last month, by 22.4%, 21.4% and 19.7%, respectively, according to the Air Transport Association (ATA).

ATA yield growth: Jan-2008 to Sep-2009

Reductions come off strong growth in Sep-2008

It must be noted that last month's reductions were off fairly solid levels in the corresponding period in 2008, with domestic Sep-2008 yields up by double digits (+11.3%) and Atlantic, Latin and Pacific yields gaining 8.2%, 21.8% and 6.9%, respectively. Yields were higher in 2008, partially due to fuel price related increases, which have reduced as oil prices decreased.

But the 12 month moving averages show there is much work still to be done by the US airlines to arrest the declining yield trend.

Not happy. ATA yields: 12 month moving average

Yield reductions across the regions in Sep-2009 were also worse than the year-to-date average. 

ATA yield results: Sep-2008 vs Sep-2009

Yield per RPM

(ex taxes, USD cents)

Domestic

Y-on-y change

Atlantic

Y-on-y change

Latin

Y-on-y change

Pacific

Y-on-y change

Sep-2008

15.90

+11.3%

13.96

+8.2%

15.88

+21.8%

13.64

+6.9%

 Sep-2009 13.26 -16.6% 10.82 -22.5% 12.47 -21.4% 10.96 -19.7%
 Nine months to
 Sep-2008
15.25 +4.9% 13.38 +6.1% 14.89 +9.2% 12.83 +8.2%

 Nine months to
 Sep-2009

13.26

 -13.4%

 10.77

 -20.5%

 12.82

 -13.2%

 10.77

 -16.4%

Revenues "suppressed" - ATA

Passenger revenue levels still remained “suppressed”, according to ATA, with no trend of improvement as yet.

US airline domestic scheduled service passenger revenue growth (% change year-on-year)

Overall, international passenger revenue appeared to be on the improve from Jun-2009’s lows, and were back to single digit contractions in Aug-2009. Figures for Sep-2009 have not yet been released.

US airline international scheduled service passenger revenue growth (% change year-on-year)

Yields weakness to continue 

Looking forward, ATA carriers are likely headed for another month of double-digit yield reductions in Oct-2009, following solid yield growth for Domestic, Atlantic, Latin and Pacific services in Oct-2008 (of 6.3%, 7.7%, 19.1% and 6.7%, respectively). The post-Summer peak is showing signs of continued weakness - not the outcome the industry would have hoped for.


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