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Airline Industry

Airlines industry expected to lose $2.5B in '09

AP  Dec 09, 2008

Geneva — The global airline industry can expect a bleak 2009, with sector-wide losses of $2.5 billion despite deep cost cuts by U.S. carriers this year, the International Air Transport Association said Tuesday.

IATA chief executive Giovanni Bisignani told reporters in Geneva that next year would see the worst revenue environment in 50 years, but that U.S. carriers — many of which have already slashed capacity and cut staff as high oil prices sapped revenue during 2008 — could still turn a modest profit in 2009.

"North America will be the only region in the black, but the expected $300 million profit is less than 1 percent of their revenue," Bisignani said. "2009 will be another tough year for everyone."

Airlines in the Asia-Pacific region will see losses double to $1.1 billion, slightly more than the $1 billion loss European carriers are likely suffer.

Middle East and Latin American airlines are predicted to lose $200 million next year. African carriers will be even worse off, losing $300 million in 2009.

IATA forecasts that global passenger traffic will drop 3 percent in 2009, the first decline since 2001 when the terrorist attacks on the United States abruptly slowed global air traffic by 2.7 percent.

Lower oil prices will help cushion the blow, with the average cost per barrel next year predicted to hover around $60, translating into an industrywide fuel bill of $142 billion.

"This is $32 billion lower than in 2008 when oil averaged $100 per barrel," Bisignani said.

In fact, lower oil prices will help overall industry losses to narrow from 2008, when IATA expects a loss of $5 billion. That is slightly lower than the $5.2 billion it had predicted in September, revised due to the rapid decline in fuel prices.

"North American carriers were hit with the full impact of high fuel (in early 2008) and will post a loss of $3.9 billion this year," said Bisignani. "To cope, they cut capacity early and are now benefiting from the full impact of low spot prices for fuel."

IATA said it expects U.S. carriers to use much of the profit to replace their aging fleet. Even so, with further capacity cuts already expected next year by giants such as Delta Air Lines Inc. and American Airlines, orders for new planes will likely be deferred or canceled, said IATA's chief economist

"We are moving into an environment when extra capacity is what airlines don't need," said Brian Pearce, adding that further job cuts are also likely as flight plans continue to shrink.

Cargo traffic should drop 5 percent in 2009 following a decline of 1.5 percent in 2008, IATA said. This compares with a 6 percent drop in 2001.

IATA, which represents 240 airline companies worldwide, expects the knock-on effects of the downturn to be felt throughout the 32-million strong global travel industry, with as many as 400,000 workers losing their jobs.

For now the only upside, according to Pearce, is that fares could be lower for consumers next year.

"Competitive pressure is going to intensify even more."

Airlines industry expected to lose $2.5B in '09
Photograph by Denis Balibouse/Reuters

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