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The markets we operate in

Market overview

The pace of economic slowdown during the year was faster than most had predicted. What had first been expected to be a downturn in key developed economies turned into a global recession in the autumn of 2008. With record oil and commodity prices, sterling collapse and an unprecedented financial crisis all striking at once, even those emerging economies that had been expected to go untouched by recession saw sharp declines in growth.

In the UK, growth began slowing in the first half of the year, whilst the US economy went into recession in the last quarter. In both economies, consumer and business confidence plummeted due to rising unemployment, uncertainty in the capital markets, a continuing squeeze on credit, the erosion of household budgets and falling house prices. Growth also slowed dramatically in many Asian economies.

Government attempts – nationally and internationally – to halt the financial crisis through bank bailouts and credit guarantees staved off what might have been an even more serious collapse. Subsequent efforts to stimulate economic activity are expected by most economists to take longer to take effect.

It is hoped that these steps will kick-start the US and UK economies which will provide some economic growth in 2010. This should, in turn, provide some basis for a recovery in our own business.

Impact on the industry

The airline industry acts as an economic barometer. Like our competitors, we feel the full force of falling confidence quickly and, on this occasion, dramatically.

During the first half of the year, oil prices hit a record high of $146 a barrel, forcing up the fuel costs of all carriers to unprecedented levels and putting margins under enormous pressure. Although fuel prices subsequently fell to about a third of that level, the onset of recession had already begun in earnest, forcing many airlines into financial loss.

Even at these lower levels, fuel remains a much bigger proportion of airline costs compared to a few years ago, and the prospect of renewed volatility in prices remains a long-term concern.

The most significant impact of the downturn has been on premium passengers, with businesses looking to cut back sharply on travel to save money. IATA’s latest figures show that global premium traffic fell in 2008 by 2.8 per cent. The rate of decline is increasing, and IATA has indicated that the year to date decline for the first three months of 2009 was around 19 per cent. The rate of decline varied across the world, with trans-Pacific traffic and routes within Asia most severely hit.

“The airline industry acts as an economic barometer. Like our competitors, we feel the full force of falling confidence quickly and, on this occasion, dramatically.”

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