The passenger and yield picture for the US major airlines in recent months is quite the roller coaster. In the span of just a few months, passenger yield (system wide yield as measured by revenues divided by total revenue passenger miles, which computes to cents per mile) moved from gains of over 10% (by month, year over year) to a decrease of 20%. Similarly, passenger traffic (domestic and international) moved from fairly good gains in early 2008 to declines of more than 10% in less than six months. The combination of these two trends made for a devastating decline in total passenger revenues.
Today, as with the IATA traffic data reported last week, a rebound appears to be well underway as we see continuing strength in both yield and traffic for the US airlines.
A noteworthy element in the passenger traffic and yield trend is that passenger traffic tends to have a fairly long decline (or increase) taking the better part of a year to move from trough to peak and vice-versa (at least in this data set which is for a little more than four years). On the other hand, yield has a much sharper decline (or increase) taking less than a year to move from trough to peak to trough. This stands to reason as airlines can't react quickly enough to decreases or increases in traffic relative to their passenger fare yield. As indicated in 2008, it took the airlines about eight months to lower fares despite deteriorating traffic conditions for pretty much that entire period. Likewise, it took about six months for the airlines to react to bettering traffic conditions before they could attain better yields. Of course, hindsight is always perfect vision and yield management for an airline is more of an art than a science.
The bottom line for the dynamics of passenger traffic and fare yields is how it changes total revenues. As the second chart indicates (click on the chart to enlarge), 2006 and 2007 and well into 2008 were pretty good boom years with revenue growth averaging 7% across the months. Even though the recession started officially in December of 2007, total revenue still grew because yields were growing despite traffic falling. But a perfect storm ultimately occurred as the airlines encountered the depths of the recession with a combination of poor traffic and poor yields. This produced a very impressive reduction in total passenger revenues. In some months, revenue production declined by 25% from a year earlier. For the entire period of 2009, total revenues were down about 20% relative to 2008. This amounted to $16B of lost revenue spread among a handful of airlines. That's real money. The airline industry is indeed a penny driven business--a small fractional change in passenger yield can create huge swings in revenues and the fortunes of the airlines in the process.
No comments:
Post a Comment