Loss forecast increases to US$9 billion
The International Air Transport Association (IATA) revised its
airline financial forecast for 2009 to a global loss of US$9 billion.
This is nearly double the association's March estimate of a US$4.7
billion loss, reflecting a rapidly deteriorating revenue environment.
IATA also revised its loss estimate for 2008 to US$10.4 billion from
the previous estimate of US$8.5 billion.
No precedent
"There is no modern precedent for today's economic meltdown. The
ground has shifted. Our industry has been shaken.
This is the most difficult situation that the industry has faced.
After September 11, revenues fell by 7 percent.
It took three years to recover lost ground, even on the back of a
strong economy.
This time we face a 15 percent drop-a loss of revenues of US$80
billion-in the middle of a global recession.
Our future depends on a drastic reshaping by partners, governments
and industry.
We cannot bear the cost of government micro-regulation, crazy
taxation and partners abusing their monopoly power," said Giovanni
Bisignani, IATA's Director General and CEO in his State of the Industry
address to 500 of the industry's top leaders gathered in Kuala Lumpur
for the 65th IATA Annual General Meeting and World Air Transport Summit.
Recession is the most significant factor impacting the industry's
bottom line.
IATA's revised forecast sees revenues declining an unprecedented 15
per cent (US$80 billion) from US$528 billion in 2008 to US$448 billion
in 2009.
Air cargo demand is expected to decline by 17 percent. In 2009,
airlines are forecast to carry 33.3 million tonnes of freight, compared
to 40.1 million tonnes in 2008. Passenger demand is expected to contract
by 8 percent to 2.06 billion travellers compared to 2.24 billion in
2008.
The revenue impact of falling demand will be further exaggerated by
large falls in yields-11 percent for cargo and 7 percent for passenger.
Risks and challenges
The industry fuel bill is forecast to decline by US$59 billion to
US$106 billion in 2009.
Fuel will account for 23 percent of operating costs with an average
price of oil at US$56 per barrel (Brent).
By comparison, the 2008 fuel bill was US$165 billion (31 percent of
costs) at an average price of US$99 per barrel.
"The risk that we have seen in recent weeks is that even the
slightest glimmer of economic hope sends oil prices higher. Greedy
speculation must not hold the global economy hostage. Failure to act by
governments would be irresponsible," said Bisignani.
Efficiency gains: Over the last decade, labor productivity improved
by 71 percent. Fuel efficiency increased by 20 percent and load factors
rose by 7 percentage points.
The dramatic downturn in demand could push non-fuel unit costs
higher, which cannot be cut in proportion.
Stronger Cash Reserves: Cash reserves of US$70 billion (13 percent)
of revenues are much stronger than the 9 percent reserve that airlines
had in 2000. Some of this is being funded by the US$170 billion industry
debt or by asset sales.
"We are in a better cash position than when we faced the challenges
of September 11. But our pockets are not that deep.
A long L-shaped recovery could drain the industry of cash," said
Bisignani.
Careful Capacity Management: Global load factors for the first
quarter of 2009 are down about 3 percentage points compared to the
previous year.
This is less than the falls experienced in some recent crises as a
result of airlines better matching capacity to falling demand.
Nonetheless, the 4,000 aircraft expected to enter the commercial
aviation fleet in the next three years will make this an ongoing
challenge.
Strong Partnerships: Consolidation within political borders
(including Air France-KLM, Lufthansa-Swiss, Delta-Northwest, Cathay
Pacific-Dragonair) has created stronger players. But archaic limitations
on ownership continue to prevent broader consolidation and partnerships
across borders.
North American carriers are expected to show a loss of US$1.0
billion.
This is significantly better than the US$5.1 billion loss in 2008.
Limited hedging by US carriers exposed the US industry to rising fuel
prices in 2008.
This turned into an advantage in 2009 by giving US carriers access to
lower spot prices. Early capacity cuts are also helping.
European carriers are expected to post losses of US$1.8 billion with
collapsing demand for premium services in all major markets served by
the region's carriers (intra-Europe, North Atlantic and Europe to Asia).
Asia-Pacific carriers will post the largest losses at US$3.3 billion.
Japan, the region's largest market, is in deep recession.
China and India
The growth markets of China and India are delivering major losses as
export-driven demand slows.
This is a slightly better performance than the US$3.9 billion that
the region's carriers lost in 2008.
Middle East carriers, despite strong traffic growth, will see losses
deepen to US$1.5 billion.
The region's intercontinental hubs are vulnerable to recessionary
impacts in both European and Asian source markets.
Latin American carriers are expected to post a loss of US$900
million, as the impact of the recession in the US and China weakens
demand for the region's commodities.
African carriers are expected to see losses of US$500 million.
This is the result of a loss of market share combined with the impact
of the recession.
The industry crisis is making liberalization even more critical.
"We cannot manage in these unprecedented times with one hand tied
behind our back.
Airlines need the same commercial freedoms that every other industry
takes for granted-access to global markets and capital," said Bisignani.
In a similar vein, Bisignani urged governments to avoid protectionist
policies as they stimulate economies.
"The forces of de-globalization are gathering strength. World trade
is already suffering with a 15 percent downturn. Protectionism is the
enemy of global prosperity. In the 1930s, it prolonged the recession.
And it will not work today. To build a strong global economy, we must
fight hard to keep the world trading," said Bisignani. |