IATA Reports Continuing Airline Losses, Bleak Outlook

The International Air Transport Association (IATA) reported that airlines continue to report losses during the period through mid-2009 and do not expect conditions to improve until year end, at the earliest.

The deep recession has maintained downward pressure on traffic volumes and yields, according to survey respondents. Efforts to resize capacity to better match demand and cut costs have helped but have trailed behind the fall in traffic.

The expectations reported for the next 12 months have dipped into pessimism once more. Uncertainty around the timing of recovery and the likely level of fuel prices compound the challenges facing airlines.

There is variation in outlook across the regions with Asia on balance now more optimistic than the mood in other parts of the world. Both passenger and cargo traffic volumes continued to fall over the last three months, however expectations for the year ahead are for more stability from now on.

Expectations for yields remain weak on both the passenger and cargo sides of the business and while input costs continue to fall, the expectation forward is now for rises in the year ahead.

The bulk of respondents report falls in employment levels and expects this to continue in the 12 months ahead. There is renewed pessimism about the outlook ahead. The latest responses reflect the continuing deep economic recession during the second quarter and corresponding traffic and yield weakness.

Benefits from lower fuel costs have been outweighed by these and other factors such as passengers trading down to lower priced seats. Following on from estimated industry losses of more than $3 billion in the first quarter, more than 88 percent of respondents reported that profitability had again fallen over the most recent three-month period.

The timing of recovery and the longer term level of fuel prices are the main uncertainties affecting the outlook. Even the optimistic respondents don’t see significant recovery before the fourth quarter of this year and others not until early 2011. While fuel prices are expected to rise as economic growth picks up, the likely level is a matter of considerable debate. In light of the extreme pressure on yields seen over the last three months, one could add excess capacity to this list of concerns.

Expectations for the next 12 months have now shifted back to input cost increases over that period, with 42 percent of respondents (four times the number from last survey) expecting upward pressure. As such, on a weighted average basis, the score for the outlook in unit input costs has moved above 50 again to 55.8 (compared to 31.6 last quarter).