FT LEX comment on airlines and future demand
maturity means high fixed costs and lease payments, making them both operationally
and financially geared. As a result airlines are intensely sensitive to the economic
cycle: shares in British Airways, Air-France KLM, Continental and Delta swing
more than underlying markets (their betas range from 1.1 and 1.9).
smoother (betas of 0.5 or so).
made life easier for themselves. They rushed planes back into the air whenever
economic conditions improved, swamping demand and pushing down ticket prices.
News that Cathay Pacific, British Airways and others are beginning to wheel 747s
out of desert storage raises the fear that they making the same mistake again.
cent higher, according to consultancy Ctaira. Yet much of that is down to a big
bet by Middle Eastern airlines. North American airlines, once the worst offenders,
have hardly expanded capacity at all this year, even though traffic is up 6 per
cent. The result is fuller planes (87 per cent in June compared with an industry
average of 80 per cent) and higher ticket prices.
on capacity for summer 2011. They will be tempted to keep adding planes. After
all, demand is already back at pre-recession levels and holding planes in storage
is nothing but a cost. They will also fret about losing market share to bolder
rivals. However, with the economic recovery looking more fragile than ever, excessive
enthusiasm should be left to the immature