The scale and the speed of the current reduction in US carrier yields are frightening. US domestic yields started contracting year-on-year in Nov-2008 and in just seven months have fallen 18.8% (from USD 15.65 cents per RPM in Oct-2008 to just USD 12.71 cents in May-2009), according to ATA data. In the previous major US economic downturn associated with the end of the dotcom boom/September-11, US carriers endured 29 months of yield weakness, falling from USD 16.04 cents in Feb-2001 to USD 12.51 cents in Jul-2003 – a 22% reduction.
In other words, over 2½ years of trouble last downturn has been compressed into just eight months this time, should yields fall again in June, which all the data suggests is likely.
May-2009’s 16.2% reduction in domestic yield is approaching the biggest monthly fall this decade of 17.5% recorded in Oct-2001 in the aftermath of September-11. But in Atlantic and Pacific markets, the yield drop-off for US carriers has easily surpassed previous benchmarks during the current global economic downturn.
Last month’s extraordinary 24% fall in Atlantic yields followed a 21.9% reduction in April and a 14.4% fall in March. The previous worst reduction, post September-11, was a 13.5% fall in Oct-2001. But in cents per RPM terms, Atlantic yields in May-2009 (9.94 cents) still stand 20.8% above the previous low point this decade, of just 8.23 cents set in Dec-2001.
US carriers extracted better yields out of Pacific markets than the Atlantic last month, at 10.26 cents per RPM, but down a massive 17.9% year-on-year. The worst monthly yield fall on the Pacific this decade was also set in Dec-2001, at -19.2%, while Pacific yields are still 29% above this decade's low point of 7.95 cents per RPM established in Apr-2003.
ATA yield growth: Jan-2008 to May-2009
If the global economy is indeed recovering and carriers succeed in ratcheting up fares this Summer, then US airlines will have gotten away with a fairly brief – albeit intense – period of yield falls. The World Bank is predicting a 3% contraction in US GDP this year, followed by a 1.8% and 2.5% bounce-back in 2010 and 2011, respectively.
But if industry capacity levels continue to outpace demand falls and the economy softens further, the outlook for US carrier yields is not encouraging.
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