IATA has revised its airline financial forecast
for 2009 to a global loss of US$9 billion. This is nearly double
the association’s March estimate of a US$4.7 billion loss,
reflecting a rapidly deteriorating revenue environment.
IATA also revised its loss estimate for
2008 to US$10.4 billion from the previous estimate of US$8.5
IATA’s Director General and CEO in his State of the Industry
address to 500 of the industry’s top leaders gathered in Kuala
Lumpur for the 65th IATA Annual General Meeting and World Air
Transport Summit, said, “There is no modern precedent for today’s economic
meltdown. The ground has shifted. Our industry has been shaken.
This is the most difficult situation that the industry has faced.
After September 11, revenues fell by 7%. It took three years to
recover lost ground, even on the back of a strong economy. This
time we face a 15% drop - a loss of revenues of US$80 billion - in
the middle of a global recession. Our future depends on
a drastic reshaping by partners, governments and
industry. We cannot bear the cost of government
micro-regulation, crazy taxation and partners abusing
their monopoly power.”
Recession is the most significant factor
impacting the industry’s bottom line. IATA’s revised forecast sees
revenues declining an unprecedented 15% (US$80 billion) from
US$528 billion in 2008 to US$448 billion in 2009.
cargo demand is expected to decline by 17%. In 2009, airlines are
forecast to carry 33.3 million tonnes of freight, compared to 40.1
million tonnes in 2008. Passenger demand is expected to contract
by 8% to 2.06 billion travelers compared to 2.24 billion in 2008.
The revenue impact of falling demand will be further exaggerated
by large falls in yields - 11% for cargo and 7% for passenger.
Bisignani highlighted the following risks and challenges:
Fuel Bill: The
industry fuel bill is forecast to decline by US$59 billion to
US$106 billion in 2009. Fuel will account for 23% of operating
costs with an average price of oil at US$56 per barrel (Brent). By
comparison, the 2008 fuel bill was US$165 billion (31% of costs)
at an average price of US$99 per barrel.
“The risk that we have
seen in recent weeks is that even the slightest glimmer of
economic hope sends oil prices higher. Greedy speculation must not
hold the global economy hostage. Failure to act by governments
would be irresponsible,” said Bisignani.
Over the last decade, labor productivity improved by 71%. Fuel
efficiency increased by 20% and load factors rose by 7 percentage
points. The dramatic downturn in demand could push non-fuel unit
costs higher, which cannot be cut in proportion.
Reserves: Cash reserves of US$70 billion (13%) of revenues are
much stronger than the 9% reserve that airlines had in 2000. Some
of this is being funded by the US$170 billion industry debt or by
“We are in a better cash position than when we faced
the challenges of September 11. But our pockets are not that deep.
A long L-shaped recovery could drain the industry of cash,” said Bisignani.
Careful Capacity Management: Global load factors
for the first quarter of 2009 are down about 3 percentage points
compared to the previous year. This is less than the falls
experienced in some recent crises as a result of airlines better
matching capacity to falling demand. Nonetheless, the 4,000
aircraft expected to enter the commercial aviation fleet in the
next three years will make this an ongoing challenge.
Partnerships: Consolidation within political borders (including
Air France-KLM, Lufthansa-Swiss, Delta-Northwest, Cathay
Pacific-Dragonair) has created stronger players. But archaic
limitations on ownership continue to prevent broader consolidation
and partnerships across borders.
Carriers in all regions are
expected to report losses in 2009.
North American carriers
are expected to show a loss of US$1 billion. This is
significantly better than the US$5.1 billion loss in 2008. Limited
hedging by US carriers exposed the US industry to rising fuel
prices in 2008. This turned into an advantage in 2009 by giving US
carriers access to lower spot prices. Early capacity cuts are also
European carriers are expected to post losses of
US$1.8 billion with collapsing demand for premium services in all
major markets served by the region’s carriers (intra-Europe, North
Atlantic and Europe to Asia).
Asia Pacific carriers will post
the largest losses at US$3.3 billion. Japan, the region’s largest
market, is in deep recession. The growth markets of China and
India are delivering major losses as export-driven demand slows.
This is a slightly better performance than the US$3.9 billion that
the region’s carriers lost in 2008.
Middle East carriers,
despite strong traffic growth, will see losses deepen to US$1.5
billion. The region’s intercontinental hubs are vulnerable to
recessionary impacts in both European and Asian source markets.
Latin American carriers are expected to post a loss of US$900
million, as the impact of the recession in the US and China
weakens demand for the region’s commodities.
are expected to see losses of US$500 million. This is the result
of a loss of market share combined with the impact of the
The industry crisis is making
liberalization even more critical. “We cannot manage in
these unprecedented times with one hand tied behind our
back. Airlines need the same commercial freedoms that
every other industry takes for granted - access to
global markets and capital,” Bisignani said.
In a similar
vein, Bisignani urged governments to avoid protectionist policies
as they stimulate economies. “The forces of
de-globalization are gathering strength. World trade is
already suffering with a 15% downturn. Protectionism is
the enemy of global prosperity. In the 1930s, it
prolonged the recession. And it will not work today. To
build a strong global economy, we must fight hard to
keep the world trading,” Bisignani concluded.
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