Airlines expect another bath this year

The international commercial aviation industry expects another poor financial year on the back of fuel hedging and a fall in passenger numbers as well as airfreight demand.
The International Air Transport Organisation (IATA) in its January airline confidence business index says airline profitability expectations for over the next 12 months remain “in negative territory” for a fourth successive quarter.
The latest responses from member airlines “reflect the delayed benefits of falling spot market fuel costs due to fuel hedging and the significant drop off in demand seen in recent months, IATA economists say. 
Almost 80 percent of respondents reported that profitability had fallen in the three months to the end of 2008. Less than 10 percent saw an increase in profitability, the economists add.
Losses on fuel hedging and softening demand are cited as the main causes of the decline in profitability. On a weighted average basis (with 50 representing no-change, and values below 50 signaling a greater balance of negative views), the score for profitability over the previous three months has fallen from a peak of 82.5 in April 2007 to a new low of 14.6 at the end of 2008.
IATA says airlines in Asia are the most negative in their profit outlook, while those in the Middle East are still expecting an improvement in profitability on balance.
Expectations for growth in traffic volumes have continued to deteriorate sharply. Recession-led demand weakness drove the volume declines experienced by half the respondents to the end of 2008, while only a quarter expect passenger demand growth in 2009.
Cargo volumes continued to be weak and almost 70 percent of respondents expect a similar trend this year. Expectations on input cost increases have moderated in line with fuel price decreases, but an overwhelming majority also expect corresponding yield decreases going forward.
IATA`s premium traffic monitor, released late last week and current to November confirms airline pessimism by noting that business, long-haul and economy-class travel slumped further that month after falling in September and October.
“The number of passenger travelling on premium tickets fell by 11.5% in November, following a 6.9% decline in October. This reflects the sharp intensification of recession in major economies around the world and the contraction of world trade”.
Major long-haul markets saw the largest declines in premium travel during November with a 17.7% fall across the Pacific, a 9% fall across the Atlantic and a 9.9% fall in Europe to Asia travel.
“Now that the recession is causing widespread job loss and falling consumer confidence there has been a sharp contraction in those travelling on economy tickets as well. Economy travel numbers fell by 6% in November, following a 1.8% decline during the previous month.”
IATA warns that the low point for air travel has not yet been reached “since the economic environment is still deteriorating”. Its economists warn that with “yields now falling this is adding up to be the most difficult revenue environment the industry has [ever] faced.”
Employment levels within the industry are reported to have remained on the increase through the end of 2008 but are set to stabilise or fall slightly as further recession impacts are felt this year.
Africa and the Middle East is – for now – a happy exception. “There remains growth of premium travel in a few of the smaller markets. Within Africa and the Middle East there is growth, albeit much lower than previously, in both premium and economy travel,” IATA says. “There is also some growth in travel numbers between these regions (still showing economic growth) and key export destinations such as Europe.”