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Airlines: 2009 Was Bad, But 2010 is a Mystery

Editor's Note: This entry has been updated with proper attribution of Southwest CFO Laura Wright's quote, which in earlier versions was not attributed to the New York Times.

2009 was a tough year for the airlines, with $11 billion lost across the board and no real momentum to carry into 2010. And this is exactly why the industry's 2010 forecasts are largely, but not entirely, pessimistic.

The International Air Transport Association (IATA) just expanded its projected 2010 loss to $5.6 billion (up from an earlier projection of $3.8 billion) globally, while also saying, "The worst is likely behind us. For 2010, some key statistics are moving in the right direction. Demand will likely continue to improve and airlines are expected to drive down non-fuel unit costs by 1.3%. But fuel costs are rising and yields are a continuing disaster. Airlines will remain firmly in the red in 2010 with US$5.6 billion in losses."

And the reality is that both sentiments are true. Demand has to revive at some point, and could do so sooner rather than later if the U.S. can carry some of the recent economic improvements into the new year. Once demand does return, it will be greeted by an industry with anywhere from 10 to 15 percent fewer seats available than a year ago. So: Higher demand and reduced supply—you do the math.

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But the operative word there is "could," and it's anyone's guess as to when that possibility turns into a reality. The IATA projects a 4.5 percent growth in demand next year, bringing total traffic to 2.28 billion passengers, higher than peak levels in 2007. But a lot of that hinges on the economy, which will have a significant impact on the lucrative business travel market.

As for business travel, Southwest CFO Laura Wright, echoing Southwest chairman Gary Kelly, told Susan Stellin of the New York Times, “As we all know, the messages are really mixed on the economy, and employment numbers are still bad. We’re assuming business travel is not just going to rebound next year. If it does come on stronger than we expected, we’ll be thrilled.”

And that seems to be the industry's prevailing approach for 2010: Plan for a little, hope for a lot.

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