“This is significantly worse than IATA`s December forecast for a US$2.5 billion loss in 2009, reflecting the rapid deterioration of the global economic conditions,” the organisation says in a statement released this morning.
IATA expects industry revenues to fall by 12% (US$62 billion) to US$467 billion. By comparison, the previous biggest revenue decline, after the events of 11 September 2001, saw industry revenues fall by US$23 billion – or 7% – over a period of two years. The current contraction has taken just months.
“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. Combined with an industry debt of US$170 billion, the pressure on the industry balance sheet is extreme,” says Giovanni Bisignani, IATA`s Director General and CEO.
Demand is projected to fall sharply with passenger traffic expected to contract by 5.7% over the year. Revenue implications of this fall will be exaggerated by an even sharper fall in premium traffic. Cargo demand is expected to decline by 13%. Both are significantly worse than the December forecast of a 3% drop in passenger demand and a 5% fall in cargo demand. Yields are expected to drop by 4.3%.
The upside is that falling fuel prices are helping to curb even larger losses. With an expected fuel price of US$50 per barrel (Brent oil), 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). Combined with lower demand, total expenditure on fuel will fall to US$116 billion (compared to US$168 billion in 2008).
“Fuel is the only good news. But the relief of lower fuel prices is overshadowed by falling demand and plummeting revenues. The industry is in intensive care. Airlines face two immediate fundamental challenges: conserving cash and carefully matching capacity to demand,” said Bisignani.
IATA also revised its forecast losses for 2008 from US$5.0 billion to US$8.5 billion. The fourth quarter of 2008 was particularly difficult as carriers reported large hedging-related losses and a very sharp fall in premium travel and cargo traffic.
Regional differences remain significant, Bisignani says.
· Latin America: While
· Middle East:
Bisignani says much of the deterioration forecast for 2009 had already happened by January. As manufacturers end their de-stocking there should be a modest bounce in air freight as component shipping rises a little. But weak consumer and business confidence is expected to keep spending and demand for air transport low.
“The prospects for airlines are dependant on economic recovery. There is little to indicate an early end to the downturn. It will be a grim 2009. And while prospects may improve towards the end of the year, expecting a significant recovery in 2010 would require more optimism than realism,” said Bisignani.
Bisignani also cautioned that this crisis must bring change. “Recovery will not come without change. There is no doubt that this is a resilient industry capable of catalysing economic growth. But we are structurally sick. The historical margin of this hyper-fragmented industry is 0.3%. Bail-outs are not the prescription to return to health. Access to global capital, the ability to merge and consolidate and the freedom to access markets are needed to run this industry as normal profitable business. This is IATA`s Agenda for Freedom—and a very cost effective solution for governments desperate to stimulate their economies,” said Bisignani.
“Since our previous forecast in December economic conditions took a further dramatic turn for the worse. Companies were left with excessive inventories and so abruptly cut shipments; freight was down by a quarter by the end of the year as a result. Passenger travel has fallen less precipitously overall but premium travel is down sharply. Economists were expecting world GDP in 2009 to grow by 0.9% at the time of our December forecast. Now they forecast world GDP to shrink by 1.9% in 2009 in the deepest recession since the 1930s.”