“The outlook is bleak. The chronic industry crisis will continue into 2009 with US$2.5 billion in losses. We face the worst revenue environment in 50 years,” said Giovanni Bisignani, IATA’s Director General and CEO.
He held out praise for both carrier and IATA efforts, since 2001, to restructure the industry and individual carriers’ businesses which resulted in significant cost savings. “But the ferocity of the economic crisis has overshadowed these gains and airlines are struggling to match capacity with the expected 3 per cent 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 Bisignani.
Outlining his industry action plan for 2009 he said: “Labour 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.
He added that the current crisis could be a catalyst for change. Repeating his oft made remark that the “flag on the aircraft tail is killing the industry,” the IATA chief added: “It’s time to move beyond politics and government agreements to brands and business.”
NA carriers in unique position
On the bright side, the projected global loss is only half of what is expected for 2008 which IATA expects will amount to a US$5 billion, a slight improvement from the September projection of US$5.2 billion, thanks to the rapid decline in oil prices.
The narrowing of the net loss from 2008 is due in a large part to an extraordinary situation facing North American carriers, according to IATA chief economist Brian Pearce.
North American airlines, who were in no position to afford extensive fuel hedging, were hit with the full force of this year’s record fuel prices and as a result will post total losses amounting to US$3.9 billion for 2008.
To cope, they cut capacity early by nearly 10 per cent which gave the carriers a head-start in combating the recession-led fall in demand. This same lack of hedging is now allowing the region’s carriers to take full advantage of rapidly declining spot fuel prices.
A significant number of carriers took a beating when they quickly moved to hedge at prices over US$100 per barrel based on the thinking that oil would remain above US$130 for some time.
As a result, North American carriers are expected to post a small profit in 2009. “North America will be the only region in the black, but the expected US$300 million profit is less than 1 per cent of their revenue – 2009 will be another tough year for everyone,” said Bisignani.
The IATA chief highlighted the continuing contraction of air cargo traffic that started in June 2008. Air cargo comprises 35 per cent of the value of all goods traded globally, he said. “The 7.9 per cent decline in October is a clear indication that the worst is yet to come – for airlines and the slowing global economy.”
Forecast highlights
Among the key highlights of IATA’s forecast is an expected decline in revenue by nearly US$35 billion to US$501 billion for 2008. This drop in revenues is the first since the two consecutive years of decline in 2001 and 2002, following the 911 terror attacks.
Yields will also decline by 3 per cent, or 5.3 per cent when adjusted for exchange rates and inflation and passenger traffic is also expected to decline by 3 per cent following a growth of 2 per cent in 2008. Notably this is the first decline in passenger traffic since the 2.7 per cent drop in 2001.
Cargo traffic will also decline by 5 per cent, following a drop of 1.5 per cent in 2008. Prior to 2008 the last time that cargo declined was in 2001 when a 6 per cent drop was recorded.
On a slightly upbeat note, the price of oil in 2009 is expected to average US$60 per barrel (Brent) for a total bill of US$142 billion. Th is is US$32 billion lower than in 2008 when oil averaged US$100 per barrel (Brent).
Regional losses
Aside from North America, the world’s other regions are all expected to post 2009 losses ranging from double to 10-fold those of 2008.
Losses for European carriers will increase ten-fold to US$1 billion, said IATA pointing to the fact that 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,” it said.
The Association of European Airlines (AEA) is forecasting that European carriers will collectively post a meagre net profit of €300 million (US$379.5 million) for 2008, down from €3.7 billion in 2007, while 2009 will hold heavy losses in store for its 35 member carriers.
“We believe we will end the year with a slightly positive figure. However, for next year we are straightforward pessimistic” with Europe’s scheduled network carriers reporting net losses totalling as high as €1.7 billion, according to AEA secretary general, Ulrich Schulte-Strathaus.
All of the key indicators are pointing to a spiralling situation with passenger traffic down on all routes along with a “dramatic” fall in cargo traffic, according to Schulte- Strathaus who said cargo volumes dropped 6 per cent year-on-year in October and 7.3 per cent in September.
Middle Eastern carriers, meanwhile, will see losses double to US$200 million with IATA saying the the challenge for the region will be to match capacity to demand as fleets expand and traffic slows – particularly for long-haul connections.
