Tuesday, December 16, 2008

Airlines brace for $2.5bn loss in 2009

GENEVA : The crisis that has hit the global airline industry looks set to continue into next year with an expected loss of US$2.5 billion as it braces for the worst revenue environment in 50 years.

Carriers in all regions, except North America, are likely to post more losses in 2009 than in 2008, with airlines in Asia Pacific losing more than double this year's total, according to a new forecast released by the International Air Transport Association (IATA).

Bisignani: ‘The outlook is bleak’

"The outlook is bleak. The industry remains sick," IATA director-general Giovanni Bisignani said on Tuesday.

However, the 2009 losses are half this year's loss of $5 billion, recently revised downward from $5.2 billion projected in IATA's September forecast as a result of the slump in fuel prices, primarily due to the shift in results of North American airlines.

North American airlines' lack of hedging of jet fuel has allowed them to take full advantage of rapidly declining spot fuel price and report a small profit of $300 million next year, Mr Bisignani pointed out.

Because of limited hedging, US airlines have suffered the most from the rise in fuel prices, which is why they are forecast to generate loss of $3.9 billion in 2008, IATA chief economist Brian Pearce noted.

Airlines made their first profit since 2001 in 2007 with $12.9 billion.

The 2009 outlook is for the global airline industry to see:

- Revenue falling to $501 million from $536 million projected for 2008, representing the first drop in revenues since the two consecutive years of decline in 2001 and 2002.

- Yields declining by 3% (5.3% when adjusted for exchange rates and inflation).

- Passenger traffic tumbling by 3%, compared to a 2% growth in 2008 - the first decline in passenger traffic the 2.7% drop in 2001.

- Cargo traffic shrinking by 5%, following a drop of 1.5% in 2008. Prior to 2008, the last time that cargo declined was in 2001 when a 6% drop was recorded.

The Geneva-based airline industry group foresees oil prices next year averaging $60 a barrel (Brent) for a total bill of $142 billion for the airline industry, $32 billion lower than in 2008 when Brent crude averaged $100.

IATA projected Asia Pacific airlines would lose $1.1 billion in 2009, compared to $500 million estimated this year.

With 45% of the global cargo market, Asia Pacific carriers will be disproportionately affected by the expected 5% fall in global cargo markets next year.

The region's largest market, Japan, is already in recession, 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 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 Mumbai terrorist attack in November, IATA said.

Losses for European carriers will jump tenfold to $1 billion. The region's main economies are in recession, while hedging has locked in high fuel prices for many of the European carriers in US dollar terms and the weakened Europe is exaggerating the impact.

Middle Eastern and Latin American carriers will each see losses double to $200 million, while African airlines will see losses of $300 million continuing.

The IATA chief noted that the ferocity of the economic crisis has overshadowed gains the industry made in terms of improving efficiencies and restructuring.

"It will take changes beyond the control of airlines to navigate back into profitable territory," he said, referring to IATA's earlier call for, among others, governments to stop "crazy" taxation, fix infrastructure, give airlines normal commercial freedom and effectively regulate monopoly suppliers.

Recovery into profit by airlines is not expected until 2010, according to Mr Pearce

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