Thanks to the impact of global recession, the world’s airlines are looking at $US9 billion (more than $A11 billion) in losses, almost double the previous estimate of $US4.7 billion.
In a speech to the annual conference of the airlines’ club (IATA) in Malaysia yesterday, the organization’s CEO Giovanni Bisignani said the latest figures reflected a "rapidly deteriorating revenue environment" due to the worldwide economic downturn.
"There is no modern precedent for today’s economic meltdown. The ground has shifted. Our industry has been shaken," the IATA chief said in his speech.
"This is the most difficult situation that the industry has faced."
The speech provides background for the results expected in August from our major carriers, Qantas and Virgin Blue. Qantas will be in a position shortly to update the market if there has been any significant change in its forecast for a sharp drop in second half and 2009 earnings.
The upgrading of the estimated losses saw airline shares in Europe and the US fall sharply on stockmarkets overnight.
IATA’s previous projection had been made in March, but oil prices have surged since then, a development highlighted in the IATA chief’s speech.
"We expect the industry fuel bill to fall by $US59 billion, but rising oil prices anticipating recovery are a great risk.
"Greedy speculation must not hold the global economy hostage. Failure to act by governments would be irresponsible.
"On top of this, an even bigger negative number is on the horizon: $US80 billion.
"That is the total revenue that will disappear with falling demand, collapsing yields, broken consumer confidence, and pandemic fears.
"The landscape is harsh. Airlines will lose $US9 billion this year."
IATA also revised its loss estimate for 2008 to a huge $US10.4 billion ($A12.97 billion) up from its previous estimate of $US8.5 billion ($A10.6 billion).
Bisignani said the impact of the current global financial and economic crisis is worse than that of the September 11, 2001 attacks in the US.
He said the 2001 attacks in New York saw global airline revenues tumbled by 7.0% and it took three years for the industry to recover despite a strong global economy.
"This time we face a 15 per cent drop – a loss of revenues of $US80 billion ($A99.78 billion) in the middle of a global recession," he said.
"Our future depends on a drastic reshaping by partners, governments and industry. We cannot bear the cost of government micro-regulation, crazy taxation and partners abusing their monopoly power."
The airline industry has been among the worst hit by the economic crisis, which struck in the third quarter of last year, as people cut back on their travel plans.
Jet fuel, the biggest cost for most airlines, follows movements in crude oil prices, which have climbed to about $US68 a barrel after falling to as low as $US32.40 last December.
They peaked over $US70 last Friday in the wake of the better than expected US jobs report.
Bisignani said he expects the flu to have a “limited” effect on travel because the World Health Organization hasn’t called for travel restrictions.
“It’s difficult to imagine” profits for the airline industry in the next “couple of years,” he said.
"How long must we travel the desert of global recession?
"There is no modern precedent for today’s economic meltdown.
"Cargo remains a good leading indicator. Its 23% freefall in December was a clear sign that the global economy was collapsing. It has been stable at that level for five months.
"This may be the bottom but recovery is different. Banks are still not able to finance business. US$1 trillion is still needed to re-capitalize. Our customers don’t have confidence.
"They need to reduce debt and that means less cash to spend.
"Business habits are changing and corporate travel budgets have been slashed. Video conferencing is now a stronger competitor.
"Optimists see growth by the end of the year but pessimists view this as a mirage and expect an L-shaped recovery.
"I am a realist. I don’t see facts to support optimism.
"Our industry is in survival mode. Whether this crisis is long or short, the world is changing.
"Even if we try to look beyond the crisis we must recognize that it will not be business as usual.
"Change is critical. We must use this crisis as an opportunity for governments, partners and airlines to build a stronger industry."
These are the numbers on the airline industry’s health given by IATA:
(1) The industry net loss for 2008 was US$10.4 billion (-2.0% margin), and 2008 operating profit was US$1.5 billion. For 2007, the net profit was US$12.9 billion (2.5% margin) and operating profit was US$19.7 billion.
(2) 2009 industry fuel bill will be US$106 billion versus 2008 industry fuel bill of US$165 billion.
(3) IATA forecasts total industry revenues of US$448 billion in 2009. This is US$80 billion (-15%) less than the US$528 billion recorded in 2008.
(4) IATA forecasts 2009 industry losses of US$9 billion (-2.0% margin), with an operating loss of US$1.7 billion. This would be the first operating loss since 2003 when the industry recorded an operating loss of US$1.4 billion and a net loss of US$7.5 billion.
