Despite the improving economic outlook, the world’s major airlines face three to four more miserable years of losses and indifferent profits.
They will lose more money that previously believed this year, and it could be 2012 before they regain 2008 levels which were tough for some anyway.
The International Air Transport Association (IATA) overnight revealed it now expects airline losses to hit 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 said in a speech and statement.
The Group also lifted its loss estimates for 2008 from a loss of US$10.4 billion to a loss of US$16.8 billion.
And it says airline losses will improvement in 2010 to a gross figure of $US3.8 billion.
IATA said 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.
IATA listed a trio of 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.
“The optimism in the global economy has seen passenger and freight volumes rise, but that is the only bright spot.
"Rising costs and falling yields have squeezed airline cash flows.
"The sharp decline in yields will leave a lasting mark on the industry’s structure. And revenues are not likely to return to 2008 levels until 2012 at the earliest,” said Bisignani.
“With cash flows substantially down over the first half of the year, the situation is critical. Larger carriers have built-up cash reserves of US$15 billion – a war chest that is warding off a major cash crisis.
“But the outlook for small and medium sized carriers – with limited options to raise cash – is much more severe,” said Bisignani.
The regional picture is varied:
North American
carriers are expected to post losses of US$2.6 billion, more than double the previously forecast loss of US$1.0 billion. Early resizing of capacity matched the slump in demand. But yields remain weak and recovery in travel demand is being held back by high levels of debt and unemployment.
European carriers are expected to post the largest losses, US$3.8 billion. This is also more than double the previously forecast US$1.8 billion loss. Key long-haul markets were hit by the world trade collapse and delays in relaxing slot regulations prevented a timely reduction in capacity.
Asia-Pacific carriers will post losses of US$3.6 billion, similar to the US$3.3 billion previously forecast. Worst hit by the recession and fuel hedging losses at the end of 2008, the region’s carriers are the first to benefit from reviving Asian economic growth and the modest restocking of inventories in the West.
Latin American carriers are expected to break even, an improvement from the previously forecast loss of US$0.9 billion and the best performance among the regions. Airlines in this region are benefiting from more robust economies and less of the consumer debt headwind seen in North America.
Middle East carriers will also see an improved outlook, from a loss of US$1.5 billion to a loss of US$0.5 billion. Airlines continue to gain long-haul market share with expanded capacity and hub connectivity. The weakness of economic recovery, however, could mean continued excess capacity and further losses.
The outlook for Africa’s carriers is unchanged with an expected loss of US$0.5 billion. In spite of many economies on
