For the last 2 years - 2006-2007 we have been very bullish on the Airline Industry in general. With clear weaknesses persisting in certain sectors, the mood however has been broadly bullish. Particularly with respect to the US Domestic market. Record load factors and yields have pushed the sector above its previous historic highs of 2000. There is however a trend emerging within the overall sector that is worrying.
The highs are shorter and the lows are deeper and longer.
Peter Drucker once wrote that the industry sector that had never made money was Tech. Airlines as a whole in the North American market have not shown and industry profit in 6 years.
However the situation is not looking good for the mid term. Several companies are issuing warning notices - Southwest and Delta being prime examples - that the US market will be at best flat in 2008. Delta is responding by even more cuts in its Domestic mainline markets and shifting capacity to the International market. Southwest is starting to look at how Ryanair and Easyjet are boosting their bottom lines with ancillary revenues.
So enjoy it while it lasts. Look for significant increases in non-traditional (IE legacy) airlines activity in 2008. The LCC share will continue to rise and yields will decline from their 2007 highs.
Cheers
Timothy
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