Airline Industry Analyst sees ‘Significant profits in 2009’

In spite of the shadow over the economy and concern about the decline in travel demand, analyst Michael Derchin of FTN Securities is still optimistic about the airline industry. He recently outlined his case at a speech at the Wings Club in New York, and here are his major points:


Airlines

  • Unlike previous recessions, the US airlines are poised to generate significant profits in 2009. The main profit drivers will produce net income of $3.9 billion on $112 billion of total revenue or a 3.5% net profit.
  • This surprisingly strong outlook is in stark contrast to the close to $5 billion net loss expected for the foreign carriers this year.
  • The primary difference between the US and foreign carriers is the capacity control exhibited by the US airlines while the foreign carriers go through the traditional boom/bust cycle exacerbated by excess capacity.
  • Cargo and premium passenger traffic, traditionally the cornerstones of foreign carrier profitability, are the two weakest businesses in the current global recession. The US carriers are less exposed to these businesses being primarily domestic oriented with limited cargo lift.