The outlook for airlines has detiorated markedly in the first quarter of 2009, according to the International Air Transport Association (IATA), which has almost doubled its initial estimate of the sector’s losses for the year to US$4.7 billion.
In December, IATA reported that the global air transport industry would make a loss of US$2.5bn this year. However it has revised its forecast against a backdrop of both passenger and cargo demand deteriorating more than expected. “The state of the airline industry today is grim. Demand has deteriorated much more rapidly with the economic slowdown than could have been anticipated even a few months ago,” said Director-General Giovanni Bisignani.
“The relief of lower fuel prices is overshadowed by falling demand and plummeting revenues. The industry is in intensive care.”
IATA, which represents 230 airlines including British Airways, Cathay Pacific, United Airlines, and Emirates, also raised its estimate of international airline losses in 2008 to $8.5 billion, from its previous $8 billion estimate.
Falling fuel prices are helping to curb even larger losses. With an expected fuel price of US$50 per barrel, the industry’s fuel bill is expected to drop to 25% of operating costs (compared to 32% in 2008 when oil averaged US$99 per barrel).
Mr Bisignani said that there was little to suggest an early end to the downturn but that the market would hit rock-bottom in 2009 before staging a muted recovery in 2010.
“While prospects may improve towards the end of the year, expecting a significant recovery in 2010 would require more optimism than realism,” he said. “We do expect better prospects toward the end of this year or the beginning of 2010.”
“Demand has deteriorated much more rapidly with the economic slowdown than could have been anticipated even a few months ago.”
Airlines in Europe and Asia will be particularly hard hit, with North American airlines expected to fare better.
Regional differences remain significant, according to IATA. Carriers in Asia Pacific continue to be hardest hit by the current economic turmoil and are expected to post losses of US$1.7 billion.
North America is expected to deliver the best performance for 2009 with a combined US$100 million profit. Carriers are benefiting from careful capacity management and lower spot prices for fuel.
Europe’s carriers are expected to lose US$1 billion in 2009. A forecast 2.9% fall in the continent’s GDP is expected to result in a drop in demand of 6.5%. Capacity cuts of 5.3% will not keep pace with the fall in demand, driving yields and profitability down.
While Latin America is forecast to maintain positive GDP growth in 2009, the collapse in demand for commodity products is expected to see traffic plunge by 7.8%.
African carriers are expected to produce 2009 losses of US$600 million.
Middle East will be the only region with demand growth in 2009 (+1.2%). But this will be overshadowed by the impact of a 3.8% increase in capacity. While this is significantly below the double-digit growth of previous years, the region continues to add capacity ahead of demand. The result is expected to be a loss of US$900 million.