We are in the perfect storm

[Rebel]

IATA's Bisignani claims, “We are in the perfect storm.” "We are a fragile industry and we are in crisis; wait and see is no longer an option," was yesterday's assessment from IATA DG and CEO Giovanni Bisignani, who was addressing the Australian National Aviation Press Club in Sydney.

He claimed that despite the recent reduction in oil prices, commercial aviation remains in need of assistance. "We are in the perfect storm of uncontrollable fuel costs and falling demand. Airlines could lose as much as $6.1 billion this year. Already 25 airlines in our financial system have gone bust--greater than immediately following 9/11--and we are bracing for more," he told the gathering.

Bisignani warned that June cargo carriage dropped 0.8% year-over-year while passenger growth slowed to 3.8%, or half of last year's figure of 7.4%. He warned that the "unstable geopolitical system in Russia and the Middle East could easily send oil prices skyrocketing again."

He lauded the industry for its $5.6 billion profit in 2007, the first after six years of losses that topped a combined $40 billion. He said airlines have worked hard to reduce sales and marketing costs by 25%, improve fuel efficiency 19% and drop nonfuel unit costs 18%. But the result of all that work was a margin of only 1.1%.

He blasted governments for thinking "green" and seeing cash and not using the taxes to help the industry reduce emissions. He cited the UK's Air Passenger Duty that collected £2 billion ($3.72 billion) last year, a sum slightly more than aviation's climate change costs. "The government now plans to change the name and collect even more--£3.6 billion by 2012. And none will go to helping the industry's emissions goals," he said.

Bisignani called for governments to cut taxes, unwind bilateral agreements, allow more cross-border mergers, ensure a level playing field and effectively regulate safety, security, monopolies and environmental standards so "airlines can do business like any other business." (Source: Air Transport World)

[SQ]

and.......are you in a perfect storm ?
niche market, niche market...

[Kelowna Pilot]

The North American automotive industry is also in a perfect storm... as are numerous other industries. Forestry in BC is one such example. The Canadian housing market is poised to go into a big downturn, following the US example. This will result in a lot less discretionary income for trips and vacations.

The economy is going into a big slump... The aviation industry is going to get hammered hard regardless of oil prices.

Why everyone acts so surprised to this is beyond me... anyone over 30 should be familiar with the boom-bust-boom-bust cycle by now.

I expect a recovery in maybe 5 years. It'll go good for a couple years after that. Then back to another bust cycle.

[North Shore]

I expect a recovery in maybe 5 years. It'll go good for a couple years after that. Then back to another bust cycle.

...Depends on the price of oil..

[WJ700]

I wish I could find the graphical model somewhere, but I can't. It depicts the 'seven year cycle' but the curve has always deepened, reflecting the severity of the down turn to the boom or upswing. If someone knows the model I'm speaking of.. throw up a link! It certainly didn't look good when I saw it last... but I can't remember the last time since the depression that the USA was quite so F'd up economically.

[piggy]

The perfect storm was expected. Housing market slow down in USA-expected. China stocks correct 60% in the last year when the Olympics start-expected. Oil correcting to $100 (on slow down of china's infrastructure building preceding the olympics)and a shift to US dollar and funds rotating out of the commodities sector.-expected.
I have said it before. I believe this housing market issue is the first course of a major night out at the restaurant.

Going forward, only the airlines that have a great product and are lean as hell, are going to get through this supercycle of high commodity prices (oil). Legacy carriers that have sh*tty service and are bloated with high cost , unhappy employees will restructure while losing market share to the successful airlines-or disappear altogether.

Air Canada over the next 5 years will lose market share to Westjet..full stop. no question about it. Southwest will eat other airlines alive in the US.

Anybody in the know with the airlines basically says WJ and Southwest are the best airlines by far to invest in in North America. Simply because they have good business models, great customer service and a lower cost structure. Oh and now they are code sharing

China has 400 billion of infrastructure costs over the next few years to spend. They spent 41 billion to prepare for the Olympics-far more than any other country ever in history.
If you think inflation due to the demand of raw materials is going away--think again.
Inflation going forward will be the biggest issue, and I think when rates rise around the world (nobody really knows when that will happen), that is when pain will begin. Cant wait to see how it all unravels.

[Kelowna Pilot]

Well, not everyone saw the 'perfect storm' coming.

There was a tremendous amount of mania, particularly in the housing market, that "prices will go up forever" because "this time it's different."

You even saw the same kind of thinking of this forum... the hiring boom will last forever because "this time it's different".

Anyone who questioned the bull market and its underpinnings was labeled a doom and gloomer.

Now, it's all coming undone.

I agree that Westjet will probably weather the downturn better than Air Canada, but I wouldn't be totally bullish on Westjet.

Sooner or later, they'll going to have to come to terms with oil prices (you can't hedge forever).

And the equally big issue is that the Canada is now catching up to the US economy. Even Alberta is showing some pretty big cracks right now.

This means a lot less vacations and business trips, which inescapably means less flying.

[. .]

I don't think anyone questions the success of WestJet's business model. What I question is their ability to continue to accept more and more 737s' during slowing times. At some point there's only so much flying for that aircraft size in Canada in a slowing market. There's been the rumors that Transat is going to be getting their own 737's. If so that's a bunch of planes WestJet is going to have find flying for. Can they dedicate more planes to YYZ-YOW-YUL and still make money?

[daveg]

Most of the new 737's will be deployed into the US to increase our market share down there and vacation destinations. Im sure they will also be used to gain the 50% market share in Canada they plan on taking.

[. .]

daveg: It's the expansion into the US that has me interested to see the results. Certainly there are some routes that could be run that would be profitable. However, I believe with the American downturn you're looking to grow into what is shrinking. WJ has already had to cancel Canada - USA routes because they're not profitable, it makes me wonder if their first pick routes aren't working, how they'll make a go out of second and third pick routes.

[daveg]

For starters are the routes the Southwest wants WJ to start flying into. That alone will take care of some of the new 737's. Southwest has no plans to do any of the cross-boarder flying, it wall all be in WJ's ballpark.

Most of the flying that WJ cancels are seasonal routes and they are planned that way. For instace WJ is done with Newark in Nov. They will start up again next year...it's a great way to "test the water" and, if it doesn't make money, were out and I'm glad they operate that way, it keep's us profitable. Anyway that stuff is out of my league...I just fly planes. Cheers.

[E-Flyer]

The North American automotive industry is also in a perfect storm... as are numerous other industries. Forestry in BC is one such example. The Canadian housing market is poised to go into a big downturn, following the US example. This will result in a lot less discretionary income for trips and vacations.

The economy is going into a big slump... The aviation industry is going to get hammered hard regardless of oil prices.

Why everyone acts so surprised to this is beyond me... anyone over 30 should be familiar with the boom-bust-boom-bust cycle by now.

I expect a recovery in maybe 5 years. It'll go good for a couple years after that. Then back to another bust cycle.

Only if economy didn't have anything to do with the states.

[piggy]

Well, not everyone saw the 'perfect storm' coming.

There was a tremendous amount of mania, particularly in the housing market, that "prices will go up forever" because "this time it's different."

You even saw the same kind of thinking of this forum... the hiring boom will last forever because "this time it's different".

Anyone who questioned the bull market and its underpinnings was labeled a doom and gloomer.

Now, it's all coming undone.

I agree that Westjet will probably weather the downturn better than Air Canada, but I wouldn't be totally bullish on Westjet.

Sooner or later, they'll going to have to come to terms with oil prices (you can't hedge forever).

And the equally big issue is that the Canada is now catching up to the US economy. Even Alberta is showing some pretty big cracks right now.

This means a lot less vacations and business trips, which inescapably means less flying.

Yes, it is true that in a peak of a bubble no one knows your there-otherwise it is not a bubble is it? When there is irrational exuberance (greenspan's famous words) then there is problems. Most economists were taking about the US going to melt down in the US at least 1 year before it happened. They where also taking about how Ontario is going to bite it big time with its exposure to the USA-now happening. They say the excess liquidity has been just forming one bubble after another..Tech---real estate--commodities---whats next??
If oil does go back to $200, which many believe it will, then yes WJ will have difficulty. However, If WJ is just keeping its head above water, AC will probably drown. The US will be much worse. As airlines with higher cost structures are forced to cancel routes (even if the A/C is full), then lower cost airlines move in and fly the route profitably and establish a long term customer base, keeping those passengers. This is whats happening right now with Southwest and WJ, and what is allowing WJ to continue to expand.

just my guess really.

[Kelowna Pilot]

However, If WJ is just keeping its head above water, AC will probably drown.

Agree 100 percent.

But, frankly, the aviation game is so loopy and volatile, that I'm hesitant to make any kind of predictions other than that the industry is going into a slump phase.

Who the winners and losers will be is anyone's guess. The parameters of the game can change so quickly. WJ is not immune to this.

[Anti-Ice]

What I'm curious about are the vacation charter companies ie; sunwing, newair, canjet, etc.

Airlines around North America are in trouble and yet some companies continue to hire/expand. Is this sustainable? How are the vacation/charter companies going to fare in comparison to the skeds.

[. .]

Apparently sunwing is done hiring for the year.
Zoom is apparently bankrupt and having their planes repossessed in YYC.
NewAir has yet to actually get a plane.
CanJet certainly has a long enough memory to remember their last ass kicking. So I can't see them expanding aggressively.

I haven't heard anything about SkyService. They were doing some interviews about a year ago, but that's the last I heard.
I haven't heard anything about Transat. Maybe some interviews in the early winter?

[Kelowna Pilot]

Airlines around North America are in trouble and yet some companies continue to hire/expand.

Here's a secret:

The airlines will hire up until the last day, and then start laying off the next.

It's bizarre in many ways - but that's aviation for you.

[. .]

Airlines around North America are in trouble and yet some companies continue to hire/expand.

Here's a secret:

The airlines will hire up until the last day, and then start laying off the next.

It's bizarre in many ways - but that's aviation for you.

What a sick joke. I wish even a bit of that wasn't absolute truth.

[tsgas]

All the while the flying schools will be pushing the "upcoming world pilot shortage"

[Rebel]

Southwest to cut nearly 200 daily flights in January. Southwest Airlines said yesterday that it will cut 196 daily flights while adding just six when it launches its winter schedule on Jan. 11, a more than 5% reduction from its current schedule.

The carrier cited traditionally lower demand and poor weather during winter months as well as a slow economy and high fuel costs. It said some flights potentially could be added back to the schedule in the spring.
Three routes will be dropped: Phoenix-Birmingham, Nashville-Oakland and Nashville-Seattle. The rest of the cuts will result from lowering frequencies. SWA will operate 22 fewer daily departures from Chicago Midway, 13 fewer from Baltimore, 12 fewer from Las Vegas and 10 fewer from both Phoenix and Nashville.

Chairman, President and CEO Gary Kelly said last month that the LCC, which has remained profitable this year in contrast to its competitors, was taking a "cautious" approach to growth. "We're already in a mode where we're essentially not growing [for the remainder of the year] and it's not hard to believe that will continue through 2009," he told analysts. "We're not real bullish about adding flights at all". (Source: Air Transport World)

[mighty mouse]

can we please kill this thread, its really depressing me.

[SouthIsland]

Correct me if I'm wrong, but I'm pretty sure WJ does not hedge their fuel. They've been paying current market price and are still turning a profit. If oil hit's $200 a barrel I think we all better consider a new profession!

[Kelowna Pilot]

All the while the flying schools will be pushing the "upcoming world pilot shortage"

I heard a rumor that ATAC is planning on bringing "Baghdad Bob" out of retirement to come work for them to counter the negative press the aviation industy is getting.

All this bad press has gotta be hurting enrollment at ATAC member flying schools:




Baghad Bob (Al-Sahaf) would have big shoes to fill, but I think he could live up to his reputation:

In an age of spin, al-Sahaf offers feeling and authenticity. His message is consistent -- unshakeable, in fact, no matter the evidence -- but he commands daily attention by his on-the-spot, invective-rich variations on the theme. His lunatic counterfactual art is more appealing than the banal awfulness of the Reliable Sources. He is a Method actor in a production that will close in a couple of days. He stands superior to truth."

-- Jean-Pierre McGarrigle

[ScudRunner]

That guys awesome I remeber the Abrams tanks rolling behind him while he was saying " There are no Americans in Baghdad"