You read that correctly. Despite weakening demand trends, Wall Street analysts are not discounting the possibility of not only U.S. airline industry profits in 2009, but perhaps
record profits. Why? Fuel prices that have retreated dramatically from record highs, sizable capacity cuts, airfare hikes and the numerous other survival moves made by carriers this year.
JPMorgan analysts in a research note issued today wrote, "It is growing increasingly possible that 2009 industry fuel expense could be lower than in 2008." Along with 6 percent less capacity and billions more in ancillary revenue, they suggested, there is "at least the potential for near-record industry profitability--an outcome not reflected in our forecasts or any others (as near as we can tell)."
At UBS, analysts this week also issued a report indicating that "airlines are now positioned to be profitable at much higher input costs than ever before." They cited measures that "were probably long overdue but would likely not have been taken had it not been for higher fuel prices," including capacity cuts (which "appear to be bearing their typical pricing fruit"), capital expenditure curtailment, onboard food and beverage sales, and "other previously taboo practices." Also noting the failures of Eos, MaxJet, SkyBus and other carriers, UBS analysts wrote, "It can be argued that high fuel prices are one of the best things to happen to the industry."
The International Air Transport Association has a much different perspective (granted, a global one rather than a U.S.-specific one). "With an expected oil price of $110 per barrel ($136 for jet fuel) and continued weak growth, industry losses are expected to continue at $4.1 billion," according to the association's first 2009 forecast, issued this month.