Finally - proof of falling airline yields
So, for all the doubters who believed that a full aircraft meant that the airlines were performing well, here is the evidence that not only are people paying far less but also costs are rising - a true coffin corner for the businesses (FT.com):
Air fares nosedive amid falling travel demand
By Roger Blitz in London
Published: September 18 2008 03:00 | Last updated: September 18 2008 03:00
Falling demand for business and leisure travel is causing a marked decline in air fares, with UK fares to North America declining by nearly a half, according to American Express.
Air fares peaked earlier this year as a result of rising oil costs. But the slowing global economy has caused that to reverse.
The lowest economy class fares in Europe, the Middle East and Africa fell on average by 12.5 per cent in April to June compared with the first quarter, with long-haul fares down more than a quarter.
But UK fares suffered the sharpest falls, with the lowest economy fares down by an average of 20.2 per cent, including a 49 per cent fall in fares to North America and a 22 per cent decline in fares to Japan, Asia-Pacific and Australia.
Amex's twice-yearly Business Travel Monitor reveals the extent to which air prices have yo-yoed in the first six months of 2008. Economy fares rose on average by 7.1 per cent in January to March, including a 15.5 per cent rise from the EMEA region to North America. In the first quarter, the lowest economy fares in the UK rose by 11.3 per cent, and standard business fares were up by 6.2 per cent.
The volatile fares have added to the strains in the airline industry.
Joakim Johansson of Amex said: "Trading conditions for airlines have become increasingly difficult in the first half of the year, and 24 airlines filed for bankruptcy in the period, just under half of which were based in Europe."
Amex says increased competition on transatlantic routes created by the launch of Open Skies on April 1 is driving down prices on business class fares. Since April, average business class fares have fallen 25 per cent for London to Newark, and 24 per cent for London to New York's JFK.
London business class fares to Los Angeles and Seattle are down 9 per cent.
On a year-on-year basis, the cheapest economy fares are down 10.9 per cent and standard business fares have fallen 4.3 per cent.
Hotel rates in Europe, the Middle East and Africa have also fallen over the second quarter compared with the first. Average daily rates in 41 out of 48 cities in the region rose 6.9 per cent year on year in January to March, but by June, average falls of 3.6 per cent were being recorded in 30 cities.
The euro's strength has caused demand for hotel rooms in Europe from international visitors to tumble and forced prices down. In Paris, hotel prices fell 37 per cent in the second quarter while those in Rome fell 32.4 per cent. London was down 7.7 per cent in the second quarter, and other financial centres suffering were Frankfurt, Edinburgh and Geneva.
"The European hotel market is entering a new phase, with slower demand and lower rates," said Amex's Karen Penney. "After years of strong growth, our analysis shows that rates paid by Amex customers are decreasing in many core European destination cities."
Easyjet warns of tough times ahead
By Toby Shelley
Published: September 17 2008 09:01 | Last updated: September 17 2008 18:48
EasyJet has warned that the strength of the euro and a worsening consumer environment in the UK would slow the strong gains in revenue per seat it had achieved over the summer.
The low-cost carrier, commenting in the light of failures among rival aircraft operators such as Zoom and XL, estimated the industry faced a reduction in capacity of between 2 and 4 per cent over the winter. But it said conditions remained too volatile for it to forecast how that reduced capacity would help its efforts to protect yields on its own flights.
Revenue per seat at EasyJet rose about 15 per cent in the second half. But faced with high fuel costs, adverse currency movements and a worsening economic climate, EasyJet will only modestly increase the number of seats it offers over the winter, as it attempts to defend margins.
For the next financial year, EasyJet said it had hedged 48 per cent of its fuel requirements at $1,225 a tonne, a sharp increase in volume from the 28 per cent it had hedged by late July, and at a lower price. It has also hedged 70 per cent of its dollar requirement at $1.96 to the pound and 80 per cent of its anticipated euro surplus at €1.24 to the pound.
The airline first warned in March that full-year profits would be lower, then analysts downgraded their profits estimates by a quarter. When the company suggested in July the fall would be about 40 per cent, it slipped 10 per cent.
Rival Irish low-cost carrier Ryanair has also seen strong passenger figures but serious erosion in its profitability. It has said it could fall into a full-year loss for the first time in 11 years.
EasyJet shares fell 8¼p to close at 350p on Wednesday.
Copyright The Financial Times Limited 2008