European Airlines See No Signs Of Recovery

Figures from Lufthansa, one of the world's biggest carriers of air freight, a key barometer of world trade, showed the airline slump continuing, while Air France-KLM braced for temporary lay-offs.

Continental Europe's largest airlines -- Lufthansa by market value and Air France-KLM by revenues -- were unable to point to significant signs of recovery in separate announcements on Thursday, though Frankfurt airport operator Fraport sounded a rare but still fragile note of optimism.

Germany's Lufthansa said shipments of cargo and mail fell 14.3 percent in June after 10 percent in May as a slump in economic activity continued to weigh.

"In the air freight sector... the market environment remained weak in June," the German flag carrier said.

Passenger traffic retreated 5.2 percent in June, it said, though this was better than the 7 percent some analysts had feared, and an improvement on May's fall of 7.1 percent.

Cargo flows are under the spotlight as economists look for clues on physical trade movements. They have been hit both by economic weakness and a crisis over trade financing that G20 countries have promised to address by pumping in cash.

Just under half of international trade by value is shipped by air, according to airline lobbyists, and Lufthansa is the world's second-largest cargo network after Korean Air. When Air France and KLM, which merged in 2004 but still operate separately, are combined, they outrank Lufthansa.

FRAPORT MORE OPTIMISTIC

Fraport said it had become slightly more optimistic about 2009 after a slump in passenger traffic had eased in June.

In the United States, airlines saw steep declines in traffic in June, a sign that demand remains weak and that carriers are likely to post second-quarter losses.

Germany has been the world's biggest exporter of goods since 2003 but has been hit by a slump in exports this year.

In mixed economic data on Thursday, Germany said it might have already emerged from recession, but US unemployment data failed to cheer markets.

TEMPORARY LAY-OFFS

Air France-KLM chief executive Pierre-Henri Gourgeon told a shareholders' meeting the Franco-Dutch group may impose temporary lay-offs to cope with recession as it saw no signs yet of a recovery in travel demand.

"Air France-KLM must remain competitive. I haven't excluded temporary lay-offs. We will watch very closely. These measures should allow us to avoid affecting employment," he said.

In May Air France-KLM said it planned 3,000 job cuts in the financial year to end-March 2010 through natural wastage.

The world's airlines lost more than USD$3 billion in the first quarter of 2009, airline lobby IATA said last week, maintaining its estimate for full-year losses of USD$9 billion.

Airlines say there is little way of knowing how business trends will develop in the second half of the year and are conserving cash or merging to survive, while a rebound in oil prices looks set to delay profits when the recovery happens.

At USD$61.7 per barrel on Thursday, North Sea Brent crude futures have risen 56 percent since mid-February, but they are still less than half their peak of USD$146/bbl a year ago.

Merger talk was rekindled on Thursday when the chairman of Spanish airline Iberia stepped down and was replaced by proven dealmaker Antonio Vazquez.

Vazquez, who oversaw the sale of Altadis to Britain's Imperial Tobacco in 2007, could put new life into merger talks with British Airways, which have been bogged down for a year, analysts said.

Vienna airport operator Flughafen Wien said passenger traffic fell by 10.5 percent in June as traffic to eastern Europe declined by almost 20 percent.

The June decline was less severe than in the first five months of the year. Year-to-date traffic declined 12.7 percent.

(Reuters)