The International Air Transport Association (IATA) has revised its financial outlook for 2010 to an expected $5.6 billion global net loss, larger than the previously forecast loss of $3.8 billion.
African carriers will deliver a loss of $100 million in 2010 — consistent with the $100 million loss of 2009. Relatively strong economies and increasingly liberal markets are being offset by competitiveness challenges, IATA says.
For 2009, IATA maintains its forecast of a $11 billion global net loss.
“The world’s airlines will lose $11.0 billion in 2009. We are ending an annus horribilis that brings to a close the 10 challenging years of an aviation decennis horribilis. Between 2000 and 2009, airlines lost $49.1 billion, which is an average of $5.0 billion per year,” says IATA Director General and CEO Giovanni Bisignani.
“The worst is likely behind us. For 2010, some key statistics are moving in the right direction. Demand will likely continue to improve and airlines are expected to drive down non-fuel unit costs by 1.3%. But fuel costs are rising and yields are a continuing disaster. Airlines will remain firmly in the red in 2010 with $5.6 billion in losses,” Bisignani added.
He notes industry revenues are expected to rise by $22 billion (4.9%) to $478 billion in 2010, compared to 2009. However, revenues remain $57 billion (-11%) below the peak of $535 billion in 2008 and $30 billion below 2007 when passenger traffic was at similar levels to what is expected in 2010.
Regarding passenger demand, IATA noted that following a decline of 4.1% in 2009, passenger traffic is expected to grow by 4.5% in 2010 (stronger than the previously forecast 3.2% in September). A total of 2.28 billion people are expected to fly in 2010, bringing total passenger numbers back in line with the peak recorded in 2007.
Cargo demand is expected to grow by 7% to 37.7 million tonnes in 2010 (stronger than the previously forecast 5% in September), following a 13% decline in 2009. Total freight volumes will remain 10% below the 41.8 million tonne peak recorded in 2007. Cargo demand is rising faster than world trade as depleted inventories are rebuilt. Once the inventory cycle completes, growth is expected to fall back in line with world trade.
In 2009, passenger and cargo yields plummeted by 12% and 15% respectively. Cargo yields are expected to improve by 0.9% in 2010. But passenger yields are not expected to improve from their extraordinary low level. This is being driven by two factors: excess capacity in the market and reduced corporate travel budgets.
Capacity adjustments in 2009 were made at the expense of lower aircraft utilisation (down 6%). An additional 1300 aircraft due for delivery in 2010 will contribute to 2.8% global capacity growth, putting continuing pressure on yields. On top of this, corporate travel buyers have adjusted their budgets to reflect lower premium fare levels.
Turning to fuel, IATA says it expects an average oil price of $75.0 per barrel for Brent in
2010, up considerably from the $61.8 average expected for 2009.
As a percentage of operating costs, fuel will be 26% in 2010. This is considerably lower than the 32% of operating costs that fuel comprised in 2008, but twice the 13% of operating costs that fuel represented in 2001-2002.
This year the industry raised at least $38 billion in cash ($25 billion from capital markets and $13 billion from aircraft sale and leasebacks). “The number of travellers will be back to the peak levels of 2007, but with $30 billion less in revenues. The $38 billion cash cushion built up throughout this year will help airlines survive through the low season, but there is no recovery in sight for 2010. Tough times continue,” said Bisignani.
“The industry is structurally out of balance. The precipitous fall in yields will likely never be fully recovered. It is difficult to see how this can be balanced on the cost-side of the equation. After almost a decade of cost cutting, non-fuel unit cost reductions will be incremental at best. And the risk of rising fuel costs will be constant.
“There will be some individual airline success stories. But without relaying the foundations of the industry to facilitate structural change, covering the cost of capital for this hyper-fragmented industry will remain a dream at best,” said Bisignani.
“Consolidation is the great hope for the industry. The round of consolidation experienced since this horrible decade began is a step in the right direction. But it has been confined within political borders as a result of ownership restrictions in the archaic bilateral system. The industry cannot afford the mounting losses of the status quo. The next decade must facilitate consolidation,” avers Bisignani, who noted that in November, seven countries (Chile, Malaysia, Panama, Singapore,
Switzerland, the UAE and the US) signed a multilateral Statement of Policy Principles that was also endorsed by the European Commission.
These represent a commitment by the signatories to modernise the industry and make cross border consolidation possible. They are premised on a level playing field which is a responsibility of governments.