02 September 2009

Shoots In The US Market?

OK - so how about a little good news for a change.

I finally got to see the numbers for July from ARC. There is clearly a trend here:

Even accounting for the aberrations in Feb and the changes in Easter - we can see that since March the transaction numbers have clearly changed for the better. July's numbers show only .77% Y/Y down. August which should be out in the next week will be interesting. I would actually expect that we will see a definitive improvement in September as this was the month when sales first started to dive last year.

So now its a game of nerves for all concerned. Will the US airlines maintain discipline and keep capacity down? So far they seem to have done a good job and we don't have a really sick player who could upset the apple cart.

I will not be cheering just yet. We are still in effect bumping along the bottom. We have lost a lot of capacity and traffic from the system. For proof of this look no further than Victorville CA (and several other places like it). That is one heck of a lot of capacity. Including some highly viable 757s out there.

At the moment the really sick sector in the market is the hotels. Despite the recession - actually their capacity (according to Smith Research) INCREASED several points this year. So hotel yields there are going to stay bad.

My current sentiment? The airlines must maintain restraint and even cut more than they would normally seasonally. We have already seen the first seasonal cuts from AMR. We will see many more programs in place. However these programs are really temporary. The Airlines have bought themselves some time and burnished their balance sheets a little to survive till next year. They still need to be prepared for 2 events - a sharp downturn in the economy somewhere in the system due to a localized problem and/or a pandemic like H1N1 flu. Either of these are very possible - one might even say probable.

I will however say one thing that hopefully by now is sinking in. The time that has been bought needs to be leveraged. That means the airlines in particular (although this applies to just about every sector) needs to go back and look at their current cost structures and cut them back. This ranges from the bloated headcount at Expedia to the marketing spends at certain companies. The signs are there. Now is the time to do something about the underlying cost structure.

Carpe Diem


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