Business confidence index

IATA’s quarterly business confidence survey of airline Chief Financial Officers and heads of cargo 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 latest survey shows:

• There was a significant improvement in all the indicators of airline business confidence, measured by IATA’s quarterly survey, this January.  A divergence was evident between more positive Asian airlines and more pessimism among European airlines but, for the first time since January 2008, a majority said profitability had improved in the previous quarter (2009Q4).  76% expect profitability to improve over the next 12 months.
• There was a particularly sharp improvement in both cargo and passenger demand during the previous quarter, with the majority of airlines switching from reporting declining demand to rising demand.  Expectations for improvements in demand over 2010 have risen back to levels last seen in 2007, with over 82% of airlines expecting further gains in passenger demand and 72% expecting improved cargo demand.
• While airlines reported that unit costs remained relatively low in the previous quarter, a net balance of airlines are now expecting cost pressures to intensify over the next 12 months.  However, there is more optimism over yields suggesting that an improvement in margins is expected.  There was still a majority of airlines reporting lower yields in the previous quarter.  But this was significantly smaller than in October and expectations for the next 12 months are at a high.
• Jobs were still being cut in 2009Q4, as airlines sought to reduce costs but, for the first time since April 2008, a majority of airlines are now expecting to increase or hold employment steady over the next 12 months.
• The results of this quarter’s survey mark a sharp improvement in the business environment for airlines.  But it should be noted that this is an improvement from a very weak base, so although airlines expect the pace of improvement to be as strong as in 2007, it will still take many quarters before demand, yields and revenues recover to levels seen early in 2008, let alone catching up with the 2-3 years of growth lost due to the recession.