After the haemorrhaging collective losses of US$35 billion between 2001 and 2005, US passenger airlines finally wrote black figures again in 2006 and appeared poised to repeat the feat in 2007.
However, the double whammy from soaring fuel costs and a weakening economy threatens to unravel those gains. Cargo, which used to be the one bright spot on their balance sheets throughout the 2001-2005 turbulences, is already on the way down.
International Air Transport Association's (IATA) outlook for 2008 projects a collective airline industry profit again, thanks to global economic growth, but warns of negative impacts from stubbornly high oil prices and the US economy.
In fact, recent results tabled by US carriers indicate that the tide of red ink may be on the rise again in North America. American Airlines parent AMR tabled a $69 million deficit for the fourth quarter due to a 29 percent rise in costs. Delta and US Airways posted fourth quarter losses of $70 million and $79 million respectively, with fuel costs in the period up 28 and 27 percent. Northwest's balance sheet for the period was $8 million in the red.
For the most part, US carriers' cargo business shrank in 2007. The seven largest passenger airlines combined suffered a four percent decline in cargo revenues to $2.8 billion.
American Airlines Cargo registered a 4.6 percent decline in cargo tonne-miles for the year, while revenues fell slightly from $827 million in 2006 to $825 million. Continental's tonne-miles contracted 3.8 percent, while United's dropped 1.8 percent. At US Airways, cargo revenues plummeted 9.4 percent to $138 million, while Delta Cargo suffered a three percent revenue decline to $482 million.
With a new leadership at the helm since the beginning of the year and fresh funds for investment in equipment and infrastructure, Delta Cargo is upbeat on the year ahead. Neel Shah, the new vice-president of cargo, is bent on improving performance, particularly at the carrier's Atlanta hub, as well as on expanding the carrier's sales efforts.
Shah was bullish about the airline's ongoing international expansion, especially the launch of daily Atlanta-Shanghai flights, which are due to kick off on March 30. The B777 fielded on the route will give him a fair amount of capacity, but not so much as to face a struggle filling the plane, he said. Delta had to wait a long time for its first China route authority.
Management at Northwest, whose main focus has traditionally been on the Pacific, is less excited about that market. The airline's fleet of 747-200 freighters is suffering from the impact of high fuel costs and weak demand in the westbound direction. Tom Bach, president of Northwest Cargo, said that the high oil price has generated tremendous pressure to raise yields and revenues.
Northwest retired two 747-200Fs at the end of 2006, the main reason behind the carrier's cargo shrinkage last year, which saw revenues fall off 11.2 percent to $840 million. Cargo tonne-miles were off 8.9 percent, while yields sank 2.5 percent.
Northwest, the only major US legacy passenger airline with freighters, cut back further at the turn of the year, scrapping all-cargo flights to Singapore and Bangkok. An extensive review of the carrier's freighter network and Northwest's sales model is in progress, Bach said
A few observers question the future of cargo aircraft in the airline's fleet altogether. Bach said that no decision on the future shape of the freighter fleet has been made, citing the delays in the delivery schedule of the B787, which would free up some 747-400s for conversion from Northwest's passenger fleet. "We have not looked extensively at the possibility of walking away from freighters," he said.
If the international arena is challenging for US carriers, the domestic market seems a hopeless cause. Despite the wholesale migration of wide-body passenger equipment to international routes, domestic cargo airline Kitty Hawk collapsed at the end of October.
Even the notoriously profitable integrators find their home turf challenging. In the fourth quarter, UPS saw domestic next-day air and deferred revenues climb a paltry 0.6 percent each; for the full year they were down 0.6 and 1.9 percent respectively. FedEx blamed higher fuel costs and the weaker US economy for a six percent drop in profits and a seven percent decline in operating margins for its second quarter, which ended on November 30. |
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Source: Cargonewsasia
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