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IATA's Loss Forecast Widens


Bisignani: Airlines to lose $5.6 billion in 2010

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Bisignani: Airlines to lose $5.6 billion in 2010
Image via dailymail.co.uk

By Andrea Rothman | Dec 16, 2009

Airline losses in 2010 will total $5.6 billion, 47 percent wider than an earlier forecast, as oil prices rise while carriers compete for passengers with lower fares, the International Air Transport Association said.

Projected losses for 2010 are about half the $11 billion deficit that IATA predicts for this year. Passenger demand, after a decline of 4.1 percent in 2009, may grow by 4.5 percent in 2010 as the industry rebounds from the recession, IATA General Director Giovanni Bisignani said today in Geneva.

“Fuel costs are rising and yields are a continuing disaster,” Bisignani said. Yields, or average fares, fell 12 percent in 2009 and will remain at depressed levels, he said.

The group had forecast in September that the industrywide loss in 2010 would be $3.8 billion. IATA said today that global revenue will rise by 4.9 percent to $478 billion in 2010, below the peak of $535 billion in 2008.

“The worst is likely behind us,” Bisignani said. “For 2010, some key statistics are moving in the right direction.” Airline non-fuel costs, for example, may decline by 1.3 percent in the coming year, he said.

IATA, which represents 230 airlines carrying 93 percent of international traffic, estimated that jet fuel will represent 26 percent of operating costs in 2010, twice the share in 2001- 2002. IATA predicts that Brent crude oil will average $75 a barrel in 2010, up from an average of $61 this year.

Traffic Decline

Even as economies begin to emerge from a recession that began in late 2008 in the U.S., the benefits of higher growth rates may be slow to trickle through to airlines, which are eliminating jobs and shrinking capacity in response to a drop in first- and business-class traffic.

“Cheap travel is getting even cheaper,” Brian Pearce, IATA’s chief economist, said at the briefing in Geneva. While average fares may recover somewhat in stronger markets including Asia, he said, the weakest markets for fares will include Europe and the North Atlantic, he said.

“In those markets you’re likely to see even more downward pressure on yields,” he said.

Pearce predicted in an interview that fares in real terms will continue falling for the foreseeable future as airlines take delivery of more-efficient aircraft that reduce costs. Fares have been declining since the late 1970s when deregulation of the aviation market began.

Efficient Planes

“Fares will keep moving down,” he said. “It’s a highly competitive industry where we’re seeing new aircraft coming to market with lower unit costs, such as the 787 and the A380. Because of competition, these lower costs will end up being passed on.”

For 2010, European airlines will generate the largest losses of any region at $2.5 billion, IATA said. That’s an improvement of $1 billion from the loss forecast for this year. North American carriers may cut losses to $2 billion from $2.9 billion.

Asia-Pacific carriers are forecast to lose $700 million, improving from $3.4 billion in 2009.

Middle East carriers may have losses shrink to $300 million from $1.2 billion in 2009, and African carriers will lose about $100 million, unchanged from 2009.

The only region whose carriers will earn money is Latin America, which may see profits in 2010, as in 2009, of about $100 million, IATA said.

Pollution

The world’s airlines are seeking fuel efficiency improvements of an average 1.5 percent a year until 2020, and carbon-neutral growth from 2020, said Paul Steele, IATA director of aviation environment, who spoke to journalists by satellite link from Copenhagen, where he’s participating in talks on climate change.

“We can only get there if this whole thing is a package built on technology improvements, operational efficiency, improvements in infrastructure and also some economic measures,” he said.

Additional taxes on aviation as a means to address environmental concerns are “counterproductive,” he said. There is a “general recognition” in Copenhagen “that a tax is not the way to go,” he said.

IATA’s director of security for North America, Ken Dunlap, predicted that passengers may see stiff rules on carrying liquids on board eased within two years as airports install machines or software capable of identifying liquids that can be used for making explosives.

“Globally if there are airports that want to make the investments, we think the supply will catch up with demand at that point,” he said.

Source: bloomberg.com




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