IATA issues forecast for 2009


According to the International Air Transport Association (IATA),the world’s airlines are expected to lose US$2.5 billion in 2009.

Forecast highlights are:
Industry revenues are expected to decline to US$501 billion. This a fall of US$35 billion from the US$536 billion in revenues forecasted for 2008. This drop in revenues is the first since the two consecutive years of decline in 2001 and 2002.

Yields will decline by 3.0 percent (5.3 percent when adjusted for exchange rates and inflation). Passenger traffic is expected to decline by 3 percent following growth of 2 percent in 2008. This is the first decline in passenger traffic since the 2.7 percent drop in 2001.

Cargo traffic is expected to decline by 5 percent, following a drop of 1.5 percent in 2008. Prior to 2008 the last time that cargo declined was in 2001 when a 6 percent drop was recorded.

The 2009 oil price is expected to average US$60 per barrel for a total bill of US$142 billion. This is US$32 billion lower than in 2008 when oil averaged US$100 per barrel (Brent).

North America
The reduction in industry losses from 2008 to 2009 is primarily due to a shift in the results of. Carriers in this region were hardest hit by high fuel prices with very limited hedging and are expected to post the largest industry losses for 2008 at US$3.9 billion. An early 10 percent domestic capacity reduction in response to the fuel crisis has given the region’s carriers a head-start in combating the recession-led fall in demand. The lack of hedging is now allowing the region’s carriers to take full advantage of rapidly declining spot fuel prices. As a result, North American carriers are expected to post a small profit of US$300 million in 2009.

Region’s airlines will see losses more than double from the US$500 million in 2008 to US$1.1 billion in 2009. With 45 percent of the global cargo market, the region’s carriers will be disproportionately impacted by the expected 5 percent drop in global cargo markets next year.

And its two main growth markets – China and India – are expected to deliver a major shift in performance. Chinese growth will slow as a result of the drop-off in exports. India’s carriers, which are already struggling with high taxes and insufficient infrastructure, can expect a drop in demand following on from the tragic terror incidents in November. In China, the forecast boom in travel during Beijing’s Olympics year never materialized. The state-run airlines recorded combined losses of 4.2 billion yuan ($613 million) for January-October. Slammed by surging fuel costs earlier in the year, the airlines lost again in fuel hedging after recent drop in prices. Authorities have urged state-run carriers to cancel or delay aircraft deliveries. It’s two biggest airlines — Shanghai-based China Eastern Airlines and China Southern Airlines in Guangzhou — are in the midst of receiving 3 billion yuan ($440 million) capital injection from the government. China Eastern, which earlier failed to sell a stake to international investors, may now merge with rival Shanghai Airlines, an ally of flag carrier Air China.

Aviation experts say regional airlines should be able to weather the downturn better than their American and European peers because they have relatively strong balances sheets and more modern fleets. Also, a number of airlines, including Singapore Airlines, Malaysia Airlines are state-run, meaning they could get government support if needed.

Korean Airlines Co., the world’s largest international cargo carrier, posted its fourth straight quarterly loss for the third quarter due to a weak won, which raised the cost of purchasing fuel and servicing foreign debt.

Cathay has plans to park two freighters, offer unpaid leave to employees and possibly delay construction on a cargo terminal to cut costs. It will also scale back services to North America but add flights to Australia, the Middle East and Europe to keep passenger growth flat in 2009, but the airline won’t cut any destinations.
Singapore Airlines said its third quarter profit dipped 36 percent and warned of “weaknesses” in advance bookings for 2009.

The region’s largest market – Japan – is already in recession. Japanese carriers’ business has recovered recently as the yen’s appreciation against the U.S. dollar and other currencies made traveling overseas cheaper for Japanese. Still, All Nippon Airlines has cut its net profit forecast for the full year by a third and deferred plans to order a new jumbo aircraft.

Australia’s Qantas Airways has cut 1,500 jobs and plans to reduce capacity to the equivalent of grounding 10 planes. It also trimmed its full-year pretax profit target by one-third.

AirAsia, the region’s biggest budget airline, is taking a contrarian approach by adding flights and expanding amid the slump.

AirAsia expects to fly 19 million passengers this year and 24 million in 2009, he said — up from 15 million last year.

AirAsia has no plans to cancel or defer its order for 175 Airbus aircraft, of which 55 have been delivered with nine more targeted for 2009.

Losses for region’s airlines will increase ten-fold to US$1 billion. Europe’s main economies are already in recession. Hedging has locked in high fuel prices for many of the region’s carriers in US dollar terms, and the weakened Euro is exaggerating the impact.

Middle East
Losses for the regions airlines double to US$200 million. The challenge for the region will be to match capacity to demand as fleets expand and traffic slows – particularly for long-haul connections.

Latin America
Latin America will see losses double to US$200 million. Strong commodity demand that has driven the region’s growth has been severely curtailed in the current economic crisis. The downturn in the US economy is hitting the region hard.

Will see losses of US$300 million continue. The region’s carriers face strong competition. Defending market-share will be the main challenge.

“Airlines have done a remarkable job of restructuring themselves since 2001. Non-fuel unit costs are down 13 percent. Fuel efficiency has improved by 19 percent. And sales and marketing unit costs have come down by 13 percent. IATA made a significant contribution to this restructuring. In 2008 our fuel campaign helped airlines to save US$5 billion, equal to 14.8 million tons of CO2. And our work with monopoly suppliers yielded saving of US$2.8 billion. But the ferocity of the economic crisis has overshadowed these gains and airlines are struggling to match capacity with the expected 3 percent drop in passenger demand for 2009. The industry remains sick. And it will take changes beyond the control of airlines to navigate back into profitable territory,” said IATA’s Bisignani.

Bisignani outlined an industry action plan for 2009 that reflected the Association’s Istanbul Declaration in June of this year. “Labor must understand that jobs will disappear when costs don’t come down. Industry partners must contribute to efficiency gains. And governments must stop crazy taxation, fix the infrastructure, give airlines normal commercial freedoms and effectively regulate monopoly suppliers,” said Bisignani.

Analyst said airlines will gravitate toward mergers and seek government support to fend off the downturn. Consolidation helps airlines by cutting costs as they share resources and feed more passengers through hubs.