One Predicts Flying Will Suffer From Slump; Another Expects Profits On Cuts

If 2008 was an ugly year for airlines, 2009 could be even worse. Or, maybe not.

Florida-based airline consultant Stuart Klaskin tells the Rocky Mountain News, "If we'd talked in late August, I would've said the industry likely would have been marginally profitable next year and that demand would decline a bit in the fourth quarter but then stay constant. But, factoring in the negative pressure from the last 30 days, I think the industry could lose up to $3 billion next year and that demand will decline an additional 3 percent to 5 percent."

Klaskin's opinion isn't shared universally, and some analysts still believe the industry will be in the black next year... especially if steeply-declining oil prices continue to cooperate. Others believe businesses will reign in spending, hitting the airlines in one of their most profitable market segments.

Observers differ on exactly how much air travel could fall, and some think the industry might actually post a profit next year if oil prices continue their steep slide, or even hold where they are.

One airline analyst who's still bullish on the 2009 outlook is Jamie Baker of J.P. Morgan Chase. Baker tells the Dallas Morning News that workforce and capacity cuts, combined with lower fuel prices and revenues from all the new fees spell a very good 2009 for the industry.

In a research note last week, Baker said he sees a profit next year for every jet airline he follows, even if demand is weak. "Simply put, we are having a tough time modeling losses."

Frontier Airlines spokesman Steve Snyder says the economy is absolutely a concern. "Common sense tells you that as economic conditions continue to worsen and people lose faith in the economy, people are less likely to spend discretionary income. And when that happens it does impact our bookings."

Aviation consultant Mike Boyd says the recent economic deterioration has forced his firm to revise downward its enplanement forecast, now predicting airplane boardings at airports nationwide will drop 8.4 percent through 2010.

Travelocity, where many price-conscious leisure fliers book their tickets, says its recent survey found 66 percent of respondents will decide whether to fly over the holidays based in part on the economy. About 78 percent still expect to fly.

Terry Trippler, who runs the travel Web site Terrytrippler.com, sees a difference between media reports on the economy and the actual effect on airline customers. "...The economy is not immediately impacting everyone," he said. "I know very few people directly impacted in the past two weeks."

At its weekly fix on Friday, crude oil closed at $77.70 a barrel. That's lower than at any time in the past year, and down about 45 percent from the high in July. Jet fuel prices have followed, falling from well over $4 a gallon in early July to under $2.75 in recent days.

Using Air Transport Association numbers, that decline could save the industry more than $23 billion a year.

The major US carriers will start issuing quarterly results this week. American Airlines parent AMR Corp. reports on Wednesday, followed by Southwest on Thursday.

FMI: www.jpmorganchase.com, www.terrytrippler.com, www.kkc-co.com/