IATA sees deeper losses for airlines
The International Air Transport Association (IATA) today announced a revised global financial forecast predicting airline losses totaling US$11 billion in 2009.
This is US$2 billion worse than the previously projected US$9 billion loss due to rising fuel prices and exceptionally weak yields. Industry revenues for the year are expected to fall by US$80 billion (15%) to US$455 billion compared with 2008 levels.
IATA also revised its loss estimates for 2008 from a loss of US$10.4 billion to a loss of US$16.8 billion. This revision reflects restatements and clarification of the accounting treatment of very large revaluations to goodwill and fuel hedges. IATA industry profit figures strip-out such extra-ordinary items which are not realized in cash terms.
“The bottom line of this crisis - with combined 2008-9 losses at US$27.8 billion - is larger than the impact of 9/11,” said Giovanni Bisignani, IATA’s Director General and CEO. Industry losses for 2001-2002 were US$24.3 billion. “This is not a short-term shock. US$80 billion will disappear from the industry’s top line. That 15% of lost revenue will take years to recover. Conserving cash, careful capacity management and cutting costs are the keys to survival. The global economic storm may be abating, but airlines have not yet found safe harbor. The crisis continues,” said Bisignani.
Three main factors are driving the expected losses:
# Demand: Passenger traffic is expected to decline by 4.0% and cargo by 14% for 2009 (compared to declines of 8.0% and 17% respectively in the June forecast). By July, cargo demand was -11.3% and passenger demand was -2.9%. While both are improvements over the lows of -23.2% for cargo (January) and -11.1% for passenger (March), both markets remain weak.
# Yield: Yields are expected to fall 12% for passenger and 15% for cargo, compared to declines of 7% and 11% respectively in the June forecast. The fall in passenger yield is led by the 20% drop in demand for premium travel. Cargo utilization remains at less than 50% despite the removal of 227 freighters from the global fleet. There is little hope for an early recovery in yields in either the passenger or cargo markets.
# Fuel: Spot oil prices have been driven up sharply in anticipation of improved economic conditions. Oil is now expected to average US$61 per barrel (Brent) for the year (up from US$56 per barrel in the June forecast). This will add US$9 billion in cost for a total expected fuel bill of US$115 billion.