09 October 2008

OAG revises its forecasts - we say its worse

Following the 3rd quarter and September results from the US majors - OAG has revised its numbers downwards. Basing this new figure on flights filed through the end of the year - OAG is showing a slowing trend worldwide - it says not as bad as originally feared. I say baloney - its worse. Here are OAG's details.

The global picture has improved slightly, with the winter schedules showing a 5.2% decline in capacity and a 6.1% decline in the number of flights. OAG’s earlier analysis in August showed a 7% drop for both measures. The latest figures reveal that the world’s airlines will offer 46.3 million fewer seats for October, November and December 2008 and 451,000 fewer flights.

The US domestic market will account for 21.4 million of the cutback in available seats, or 46% of the global decline and a staggering 59% of the global drop in frequencies with 265,000 fewer flights.

The OAG analysis takes into account all future schedules filed by the airlines to date, to provide a comprehensive snapshot of planned airline activity for October to December 2008 with comparisons tracking back 10 years.

Flights and capacity within Europe are also showing worsening cutbacks. Figures for intra-Europe flights are now 5% lower than for Q4 2007 (forecast at -2.7% in August), and seat capacity is now 5.6% lower compared with the previous analysis drop of 2.8% a couple of months ago.

Earlier indications for Asia are not as bad as feared, although still worse than the global figure with a 6.5% fall in capacity and a 7.1% drop in the number of flights.

The effect of what is happening within the US and Europe is seen by the shift on transatlantic and transpacific routes. In August, OAG figures showed that both were showing some growth. The latest figures reveal a capacity reduction of 2.9% for transatlantic capacity, reversing the earlier schedule analysis of 2% growth and a drop of 3.1% on transpacific routes compared with the previous nominal rise of 0.2% year on year.

The impact of capacity cutbacks on the world’s airports remains high. OAG’s analysis reveals that 219 of the world’s airports are losing scheduled air service altogether, compared to the August figure of 275. Of these, 33 are in the US (15% of the global total); 94 (43%) are in the Asia Pacific region and 45 (21%) are in Europe.

So in looking at Septembers actual numbers load factors are way off. We are also seeing something that OAG would not be able to report on - dynamic cancellations. We are seeing a lot of those. So far for 2008 the first half of the year saw ad hoc cancellations at twice the 2007 rate.

So we estimate the total US capacity will be cut by a level of about 10% domestically vs the OAG's numbers which are just over 5%. Hmmm - whose right? Let's see how the numbers stack up at the end of the year.

One thing is pretty sure - we are going to see US domestic airline capacity cuts in January at a further level than we have now. We are estimating that the cuts could be as much as a further 5 points. if fuel stays down at this level - the US airlines may choose to keep the capacity in the air in order to stimulate more activity and ancillary revenue. So far we are seeing dramatic cut backs in all forms of oil usage - including a significant cut in petrol and kerosene usage. The speed with which the inventories built back up after Ike has been amazing. Consumers are learning new tricks - like conservation.

So as far as the market for airline products is concerned - we are not quite at the bottom yet.


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