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Airline Industry

Two more tough years for the airlines

Jun 08, 2009

KUALA LUMPUR - Airline executives at an industry gathering in Malaysia’s capital Monday dismissed talk of signs of a recovery in the slumping air travel market, saying it could take at least two years for a full resurgence.

Middle Eastern airlines alone stand to lose US$1.5 billion this year and the region’s growing long-haul airlines are vulnerable to the economic slowdown in other regions, according to the International Air Transport Association (IATA) at its annual meeting.

When asked about a recovery, Tim Clark, the president of Emirates Airline, said: “Green shoots? That’s something which has been trotted out for the last seven months.”

Tony Tyler, the chief executive of Cathay Pacific, said: “I don’t talk about such things. We don’t see anything like that as yet.”

Mr Clark said the first signs of a recovery could arrive in mid-2010, “so by the middle of 2011, we may be through it – but that is still two years down the line”.

The IATA said airline losses worldwide could total $9bn this year, nearly double its previous forecast of $4.7bn, after conditions failed to improve in either the passenger or air cargo markets. The organisation also revised upwards by 22 per cent its estimate for industry losses last year, from $8.5bn to $10.4bn.

Global airline revenues are expected to fall 15 per cent to $448bn this year, after an 8 per cent fall in passenger demand and a 17 per cent drop in air cargo.

The IATA said the Middle East’s intercontinental hubs were “vulnerable to recessionary impacts in both European and Asia source markets”. These hubs include the international airports of Doha, Dubai and Abu Dhabi, and their local airlines Qatar Airways, Emirates and Etihad Airways.

In response to the crisis, airlines around the world have cut capacity, laid off staff and deferred the arrival of new aircraft.

Giovanni Bisignani, the director general and chief executive of IATA, which represents 230 airlines, or 93 per cent of the world’s scheduled air traffic, said: “There is no modern precedent for today’s economic meltdown. This time we face a 15 per cent drop, a loss of revenues of $80bn – in the middle of a global recession.”

The current situation is worse than the aftermath of the September 11 attacks in 2001, when global airline revenues fell by 7 per cent and the market did not fully recover for three years, despite a strong global economy.

In the Middle East, six months of extended promotions and discounting to stimulate demand has kept ticket sales buoyant, but has had a dramatic effect on yields, airline executives and travel agents say.

Average air ticket prices in the UAE fell 16 per cent in January and were down 26 per cent in May compared the same months a year earlier, according to Globalstar Travel Management, a travel company with offices in Dubai.

Emirates Airline’s Tim Clark said: “We are keeping our head above water, by carrying more people for less.”

The airline managed a profit last year of Dh982 million despite falling demand and high fuel prices, he said. “The problem is the money that we are getting.”

Asim Arshad, the chief executive of Globalstar, said the slump and the resulting discounting was a real concern for the region’s travel services industry: “When the price is going down, down, down, our service charges go down as well.”

Every region in the world is forecast to post a loss this year, with North American carriers expected to make a combined loss of $1bn. In Europe, the losses will extend to $1.8bn, with $900m in Latin America, $500m in Africa and $3.3bn in the Asia-Pacific region.

Peter Harbison, the managing director of the Centre for Asia Pacific Aviation, a market intelligence provider, said: “The most positive thing you can say is, it’s not getting any worse. Freight [traffic] is a forward indicator, and if you look at the numbers, nothing says it is going to go up.”

Mr Bisignani recommended loosening those state regulations that prevent foreign ownership of air carriers.

“Airlines need the same commercial freedoms that every other industry takes for granted: access to global markets and capital,” he said.

Two more tough years for the airlines
Giovanni Bisignani, IATA / Image via


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