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Why the positive forecast for airlines?

Marketplace Staff Sep 21, 2010
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Why the positive forecast for airlines?

Marketplace Staff Sep 21, 2010
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TEXT OF INTERVIEW

STEVE CHIOTAKIS: The International Air Transport Association — the IATA as we know it — says global airlines have rebounded faster than expected from the recession. The group raised its profit forecast for this year. Steve Lott is head of communications for the North America IATA and he’s with us now live from Washington. Welcome to the program, sir.

STEVE LOTT: Good morning. Good to be with you.

CHIOTAKIS: All right. Why all the optimism from the IATA?

LOTT: Absolutely. Well, the industry is climbing out of a deep, deep hole. Over the past decade, the industry’s lost about $50 billion, so there’s been lots of red ink. But really the improved outlook is driven by several factors, one on the revenue side. Increasing demand from passengers is growing, the planes are full, and we’re seeing revenues climb higher. At the same time, costs have remained relatively stable. Fuel prices have generally remained about $75-80 a barrel. And that stability has helped the industry.

CHIOTAKIS: We’ve seen a lot of airlines merging, though, Steve. United-Continental, of course, last week. Delta-Northwest. What role do these mergers play in the positive forecast you guys have?

LOTT: Sure. Well, as we’ve seen these mergers and acquisitions, it’s led to some capacity constraint. As airlines have combined, they’ve kept a careful watch on capacity and kept a tight lid on that capacity expansion. So, in some cases, we’ve actually seen the amount of capacity or seats available drop a bit. So that’s a good thing for an airline’s bottom line as demand increases.

CHIOTAKIS: And we used to that, right? When things were really good, they tend to grow and they add flights and routes and all that, but that’s not happening?

LOTT: Exactly right. And in the past, we’ve actually seen airlines being too quick to add capacity and flights back. They’ve jumped the gun a bit, but the good news is this time around — and one of the reasons for a more optimistic forecast — is that airlines, especially in the U.S., have been very slow to add capacity back, which again is a good thing and that actually helps the bottom line.

CHIOTAKIS: Steve Lott, head of communications for the North America IATA, thanks.

LOTT: My pleasure.

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