IATA has revised its global financial forecast
predicting airline losses totaling US$11 billion in 2009. This is
US$2 billion worse than the previously projected US$9 billion loss
due to rising fuel prices and exceptionally weak yields. Industry
revenues for the year are expected to fall by US$80 billion (15%)
to US$455 billion compared with 2008 levels.
IATA also revised its loss estimates for 2008
from a loss of US$10.4 billion to a loss of US$16.8 billion. This
revision reflects restatements and clarification of the accounting
treatment of very large revaluations to goodwill and fuel hedges.
IATA industry profit figures strip-out such extra-ordinary items
which are not realized in cash terms.
“The bottom line of
this crisis - with combined 2008-9 losses at US$27.8 billion - is
larger than the impact of 9/11,” said Giovanni Bisignani, IATA’s
Director General and CEO. Industry losses for 2001-2002 were
US$24.3 billion. “This is not a short-term shock. US$80 billion
will disappear from the industry’s top line. That 15% of lost
revenue will take years to recover. Conserving cash, careful
capacity management and cutting costs are the keys to survival.
The global economic storm may be abating, but airlines have not
yet found safe harbor. The crisis continues,” said Bisignani.
Three main factors are driving the expected losses:
Demand: Passenger traffic is expected to decline by 4% and cargo
by 14% for 2009 (compared to declines of 8% and 17% respectively
in the June forecast). By July, cargo demand was -11.3%
and passenger demand was -2.9%. While both are
improvements over the lows of -23.2% for cargo (January)
and -11.1% for passenger (March), both markets remain
Yield: Yields are expected
to fall 12% for passenger and 15% for cargo, compared to declines
of 7% and 11% respectively in the June forecast. The fall in
passenger yield is led by the 20% drop in demand for premium
travel. Cargo utilization remains at less than 50% despite the
removal of 227 freighters from the global fleet. There is little
hope for an early recovery in yields in either the passenger or
Fuel: Spot oil prices have been driven up
sharply in anticipation of improved economic conditions. Oil is
now expected to average US$61 per barrel (Brent) for the year (up
from US$56 per barrel in the June forecast). This will add US$9
billion in cost for a total expected fuel bill of US$115 billion.
“The optimism in the global economy has seen passenger and freight
volumes rise, but that is the only bright spot. Rising costs and
falling yields have squeezed airline cash flows. The sharp decline
in yields will leave a lasting mark on the industry’s structure.
And revenues are not likely to return to 2008 levels until 2012 at
the earliest,” said Bisignani.
“With cash flows substantially down
over the first half of the year, the situation is
critical. Larger carriers have built-up cash reserves of
US$15 billion - a war chest that is warding off a major
cash crisis. But the outlook for small and medium sized
carriers - with limited options to raise cash - is much
more severe,” Bisignani added.
The regional picture is varied:
North American carriers
are expected to post losses of US$2.6 billion, more than double
the previously forecast loss of US$1.0 billion. Early resizing of
capacity matched the slump in demand. But yields remain weak and
recovery in travel demand is being held back by high levels of
debt and unemployment.
European carriers are expected to post
the largest losses, US$3.8 billion. This is also more than double
the previously forecast US$1.8 billion loss. Key long-haul markets
were hit by the world trade collapse and delays in relaxing slot
regulations prevented a timely reduction in capacity.
carriers are likely to post losses of US$3.6 billion, similar
to the US$3.3 billion previously forecast. Worst hit by the
recession and fuel hedging losses at the end of 2008, the region’s
carriers are the first to benefit from reviving Asian economic
growth and the modest restocking of inventories in the West.
Latin American carriers are expected to break even, an improvement
from the previously forecast loss of US$0.9 billion and the best
performance among the regions. Airlines in this region are
benefiting from more robust economies and less of the consumer
debt headwind seen in North America.
also see an improved outlook, from a loss of US$1.5 billion to a
loss of US$0.5 billion. Airlines continue to gain long-haul market
share with expanded capacity and hub connectivity. The weakness of
economic recovery, however, could mean continued excess capacity
and further losses.
The outlook for
Africa’s carriers is
unchanged with an expected loss of US$0.5 billion. In
spite of many economies on the continent continuing to
grow during the global recession, African airlines were
not able to benefit and lost market share. Further
losses are expected in this region next year.
“This is not an airline-only crisis. There is less cash
coming into the industry and the entire value chain must be
prepared for change. All our business partners - including
airports, air navigation service providers, global distribution
systems - must be prepared to cut costs and improve efficiencies.
Some airports have delivered cost reductions, but not in line with
the magnitude of the changes to the industry cash flow,” said
“Governments need a wake-up call to create a
policy framework that supports a competitive air transport sector
capable of driving economic expansion. But European governments
are fixated on using environment as an excuse to squeeze more
taxes out of the industry. And the US is not moving fast enough to
deliver the critical advantages to competitiveness that NextGen
air traffic management will bring,” said Bisignani. “We don’t want
bailouts. But we need governments to look more seriously
at this sector by (1) investing in efficient
infrastructure, (2) replacing the proliferation of
environmental taxes with a global solution for the
environment and (3) giving airlines normal commercial
freedoms to merge where it makes sense and to access
markets and global capital like any other business,” Bisignani
IATA expects losses to continue into 2010 with the
industry expected to report a US$3.8 billion net loss. This is
based on a limited revival of growth in traffic volumes of 3.2%
for passenger and 5% for cargo; very little increase in yields of
1.1% for passenger and 0.9% for cargo and oil at US$72 per barrel.
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