Sunday, October 26, 2008

Demand Is Clearly Contracting

Andrea Rothman reports on International Air Traffic

"Air France-KLM Group, Europe's biggest airline, said profit targets will be ``difficult'' to meet as an industry report showed the first monthly decline in global passenger traffic since 2003 amid slumping travel demand."

"The Paris-based airline said the global credit crisis and slowing economic growth mean fewer tourists and business travellers, and vowed to curb capacity and freeze costs. Global airline-passenger traffic fell in September, the first drop in five years, the International Air Transport Association, or IATA, said today."

``The recession is deepening more than we expected, and the worst is yet to come'' Giovanni Bisignani, IATA's chief executive officer, said on a conference call from Istanbul. ``At this rate, losses may be even deeper than our forecast of $5.2 billion for this year'' for the industry.

The struggle at Air France, one of the world's most- profitable airlines and among the best-capitalized, may signal far worse in store for weaker carriers."

``It confirms it's a really tough year for airlines,'' said Douglas McNeill, an analyst at Blue Oar Securities in London. ``Demand is clearly contracting and airlines that managed to ride out the oil-price spike in the summer are now finding that they're faced with a fresh headache to deal with.''

"Air France fell 3.1 percent in Paris, following a 13 percent drop yesterday, after the airline said it will struggle to reach an operating-profit goal of 1 billion euros ($1.26 billion) for the year through March 2009."

"The stock fell to 11.5 euros, down 52 percent this year, giving the company a market value of 3.45 billion euros."

"Passenger-traffic grew 0.5 percent last month, the slowest rate in at least two years."

``Given the current economic climate, the company indicates that it will be very difficult to meet its operating-profit goal,'' Paris-based Air France said in its statement today. ``Nevertheless, this figure should remain clearly positive if market conditions do not deteriorate further.''

"IATA said today that passenger traffic last month -- the number of passengers multiplied by miles flown -- declined 2.9 percent from a year earlier, while freight traffic suffered a 7.7 percent decline."

"The drop in passenger travel -- down 6.8 percent in the Asia Pacific region -- was the first since an outbreak of severe acute respiratory syndrome in 2003, while the cargo drop was the first since the technology-stock bubble burst in 2001."

"Even as oil prices have tumbled to about $67 a barrel from a record of $147.27 on July 11, the financial-industry crisis has slowed demand for business-class travel, which provides the bulk of airlines' earnings. Seat occupancy rates fell 4.4 percentage points from August to 74.8 percent in September."

"North American international passenger traffic fell 0.9 percent, after steady 5 percent international growth seen earlier this year, IATA said. European carriers saw traffic drop by 0.5 percent from last year. And in the Middle East, after years of double-digit growth, passenger traffic turned to a negative 2.8 percent, Bisignani said."


China Aluminum Maker Profit Dives 92%

"Aluminum Corp of China Ltd., the world's No.3 alumina producer, said on Sunday its quarterly earnings plunged 92 percent, lagging forecasts, with its outlook clouded by high costs and sliding aluminium prices."

"As China's largest producer of the metal tries to stabilise prices and cut costs, it has cut its aluminium capacity by 18 percent and alumina capacity by 10 percent."

"But analysts say that is not enough to shore up prices of aluminium, which is widely used in the financially stressed construction and automobile industries."

"Chalco is likely to make a loss in the fourth quarter since Shanghai aluminium prices have come down to early 2003 level while costs remain high," Geoffrey Cheng, an analyst at Daiwa Institute of Research, said.

"The global aluminium market is heading for big surpluses in the next few years because smelters outside China have delayed cutting output despite weak demand and falling prices, analysts said."

"The company, also known as Chalco, reported a net profit of 182.9 million yuan ($26.7 million) in the quarter ended September, down from a restated profit of 2.29 billion yuan in the same period last year, under Chinese accounting standards."

"Its total revenue for the third quarter fell 7.9 percent to 19.08 billion yuan but operating costs surged 46.5 percent to 12.16 billion yuan."

"Threats of another round of electricity tariff hikes in China and an oversupply of aluminium clouded the company's earnings outlook, analysts said."

"We think that Chalco's operating environment is likely to remain difficult for the next 2-3 years," Macquarie said in a recent research report."

"The stock lost nearly half of its market value in the third quarter and underperformed an 18 percent drop in the blue chip Hang Seng Index .HSI. It has lost nearly 85 percent so far this year, making it the third worst performing stock on the benchmark index."


Volvo Truck Orders Plunge

"Orders at Volvo, the world’s second-largest truckmaker, fell 55 per cent in the third quarter year-on-year, and in Europe it had almost as many cancellations as new orders. Volvo recorded just 115 net order bookings for new trucks in Europe, down from 41,970 a year earlier – a 99.7 per cent drop."

“We’re heading towards the sharpest downturn I’ve ever seen in Europe,” Leif Johansson, Volvo chief executive, told analysts."

"The company said that the slowdown appeared to be spreading to emerging markets and its orders in North America had failed to recover."

“We thought North America would come back up but right now it’s not the case and its continuing to go down,” Mr Johansson said.

"European truckmakers had until last year enjoyed a long boom, driven by demand from construction and hauliers in Western Europe and fast-growing east European markets led by Russia."

"Volvo said on Friday that many of its customers were holding back on replacing vehicles because of the economic uncertainty, and some were not receiving loans to finance new trucks because of tighter credit markets."

No comments: