Air Traffic Will Rise, But Not Profits

A forecast from AeroEcon suggests U.S. airlines will post a $500 million operating profit in 2005. But, before the industry and its customers breathe a sigh of relief, David Swierenga, head of AeroEcon and former chief economist for the Air Transport Association, suggests continuing interest costs and income taxes will push U.S. scheduled airlines into the red by $2 billion to $2.5 billion.

Traffic will increase faster than capacity, according to Swierenga, however, average passenger fares will continue to decrease, offsetting the growth in traffic. Revenues should increase by 5% to 5.5% from the $128 billion reported in 2004, says the report in Air Transport World. The airlines have stripped out $2 billion of compensation costs since 2001 by reducing employment by 110,000 during that period.

Troubled U.S. airlines could have an ally in Europe in the form of Transport Minister Jacques Barrot. Barrot is pressuring the U.S. to allow full European ownership of U.S. airlines. U.S. airlines need investment and Barrot sees current limits on foreign ownership as a drag on capital.

The U.S. limits foreign ownership of U.S. airlines to 25%. The U.S. offered to raise the limit to 49% during earlier talks, but the European Union rejected the proposal as insufficient.

Barrot was quoted in a Financial Times interview as saying he was encouraged by recent meetings with FedEx founder Fred Smith. Cargo carriers are anxious to have more access to Europe, and FedEx has not denied that it is interested in developing a ground network in the European Union.

Barrot is expected to bring the ownership issue to the fore when he meets with U.S. officials later in March in an attempt to reopen the EU-US Open Aviation Area discussions.


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