Business confidence index

IATA’s quarterly business confidence survey of airline Chief Financial Officers provides an invaluable forward-looking view of key financial and demand indicators. It is similar to confidence surveys that are conducted for the manufacturing and service sectors in several major economies.

The July 2008 survey shows:

• Airline business confidence in current and future profitability weakened even further in Q2 2008, continuing the steep decline seen in Q1.  Only 10% of respondents expect to see profits rising over the next year, whereas 70% anticipate a further decline (compared with 61% in the April survey and just a year ago no respondents expected a decline).  The steep rise in fuel prices is the principle driver of this slump in business confidence, but there has also been an increase in the number of airlines reporting softening demand and intensifying competition.
• The July 2008 responses strongly reflect the severe deterioration in the business environment faced by airlines in recent months.  Further expansion in developing markets (e.g. Asia), through new capacityand routes, continues to provide a boost to demand, though this is increasingly offset by a slowdown in the US economy and by increased competition on many routes.  But market growth outside the US is more than offset by the unprecedented rise in fuel prices to July, which rose above $180 a barrel, 102% higher than a year ago, pushing input price expectations to new highs.
• The reaction of airlines to this deterioration is clear from the survey.  Yields are now expected to rise sharply as airlines attempt to recover fuel costs, while employment is now, for the first time since the survey started, expected to fall as part of the necessary restructuring of capacity and cost structures.