IATA Predicts Airline Losses at $11 Billion for 2009

The International Air Transport Association (IATA) announced a revised global financial forecast predicting airline losses totaling $11 billion in 2009. This is $2 billion more than the previously projected $9 billion loss due to rising fuel prices and exceptionally weak yields. Industry revenues for the year are expected to fall by $80 billion to $455 billion, a 15 percent drop from 2008 levels.

IATA also revised its loss estimates for 2008 from a loss of $10.4 billion to a loss of $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 extraordinary items which are not realized in cash terms.

Passenger traffic is expected to decline by 4 percent and cargo by 14 percent for 2009, compared to declines of 8 percent and 17 percent, respectively, in the June forecast. By July, cargo demand was down 11.3 percent and passenger demand was down 2.9 percent. While both are improvements over the lows of 23.2 percent for cargo (January) and 11.1 percent for passenger (March), both markets remain weak.

Yields are expected to fall 12 percent for passenger and 15 percent for cargo, compared to declines of 7 percent and 11 percent, respectively, in the June forecast. The fall in passenger yield is led by the 20 percent drop in demand for premium travel. Cargo utilization remains at less than 50 percent 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.

Spot oil prices have been driven up sharply in anticipation of improved economic conditions. Oil is now expected to average $61 per barrel for the year, up from $56 per barrel in the June forecast. This will add $9 billion in costs for a total expected fuel bill of $115 billion.

North American carriers are expected to post losses of $2.6 billion, more than double the previously forecast loss of $1 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 –$3.8 billion.

This is also more than double the previously forecast $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 $3.6 billion, similar to the $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 $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 $1.5 billion to a loss of $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 $0.5 billion. In spite of many economies on the continent continuing to grow during the global recession, African airlines were not able to benefit and lost market share. Further losses are expected in this region next year.