Airlines brace for bad year

The International Air Transport Association (IATA) says it expects the world’s airlines to this year collectively post financial losses of US$2.5 billion in what it calls the “worst revenue environment in 50 years.”
IATA adds that all world regions, except the US, are expected to report larger losses in 2009 than in 2008. As a result it expects industry revenues to decline to US$501 billion.
“This is a fall of US$35 billion from the US$536 billion in revenues forecasted for 2008. This drop in revenues is the first since the two consecutive years of decline in 2001 and 2002,” the organisation says in a statement.
Passenger traffic is expected to decline by 3% following growth of 2% in 2008. “This is the first decline in passenger traffic since the 2.7% drop in 2001,” when the industry suffered disastrous fallout from the 11 September terrorist attacks in the US.
Cargo traffic is expected to decline 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 2009 Brent-grade oil price is expected to average US$60 per barrel for a total bill of US$142 billion. This is US$32 billion lower than in 2008 when oil averaged US$100 per barrel.
“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,” says IATA CEO and director general Giovanni Bisignani.
IATA also updated its forecast for 2008 to a loss of US$5.0 billion. This is slightly improved from the US$5.2 billion loss projected in the association`s September forecast primarily as a result of the rapid decline in fuel prices.
The reduction in industry losses from 2008 to 2009 is primarily due to a shift in the results of North American carriers. Carriers in this region were hardest hit by high fuel prices with very limited hedging and are expected to post the largest industry losses for 2008 at US$3.9 billion.
An early 10% domestic capacity reduction in response to the fuel crisis has given the region`s carriers a head-start in combating the recession-led fall in demand. The lack of hedging is now allowing the region`s carriers to take full advantage of rapidly declining spot fuel prices. As a result, North American carriers are expected to post a small profit of US$300 million in 2009. “North America will be the only region in the black, but the expected US$300 million profit is less than 1% of their revenue. 2009 will be another tough year for everyone,” says Bisignani.
All other regions will show losses, including Africa, where IATA expects airlines to chalk up losses of US$300 million in the face of strong competition. “Defending market-share will be the main challenge” for African airlines, he warns.  
Bisignani made special note of the continuing contraction of air cargo traffic that started in June 2008. “Air cargo comprises 35% of value of goods traded internationally. The 7.9% decline in October is a clear indication that the worst is yet to come—for airlines and the slowing global economy.”
“Airlines have done a remarkable job of restructuring themselves since 2001. Non-fuel unit costs are down 13%. Fuel efficiency has improved by 19%. And sales and marketing unit costs have come down by 13%. IATA made a significant contribution to this restructuring. In 2008 our fuel campaign helped airlines to save US$5 billion, equal to 14.8 million tonnes of CO2. And our work with monopoly suppliers yielded saving of US$2.8 billion. But the ferocity of the economic crisis has overshadowed these gains and airlines are struggling to match capacity with the expected 3% 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,” says Bisignani.