Airline industry expected to lose $5 billion in 2009

The International Air Transport Association has doubled its forecast for global airline losses this year as latest figures show even low-cost carriers are suffering a downturn in traffic.

As recently as December, IATA was suggesting a worldwide industry loss of $2.5 billion in 2009.

Yesterday it revised that figure to $4.7 billion, while also raising its estimate of last year’s losses from $5 billion to $8.5 billion.

IATA projects demand to fall sharply, with the impact on airline revenue exaggerated by an even sharper decline in premium traffic. The only bright spot the association sees is the oil price, with fuel projected to fall from 32% to 25% of airline operating costs this year.

The increase in forecast losses comes as industry analyst OAG reports an eighth consecutive month of declining air traffic. OAG’s figures for March reveal a 4.9% decline in flights worldwide compared with a year ago, with seat capacity down by 3.3%.

To put the figures in perspective, there will still be 2.38 million commercial flights this month. But there have been almost 500,000 fewer flights in the first quarter of the year than in 2008 – a decline of near 7%.

The biggest fall has been in the US, where a decline in low-cost capacity of just over 9% year on year is close to the overall reduction of 9.2% in US domestic airline capacity.

In Europe, low-cost carriers Ryanair and EasyJet have so far maintained their expansion plans despite capacity reductions almost everywhere else.

IATA identifies Europe and the Asia-Pacific region as the biggest problem areas for airlines. It foresees Asia Pacific airlines being hardest hit, with combined losses close to $2 billion.

Europe’s carriers should expect a 6.5% drop in demand this year, says IATA, with capacity cuts failing to keep pace. Only the Middle East is likely to see any passenger growth this year. But with capacity in the region growing at three times IATA’s projected 1.2% increase in traffic, Middle East airlines still face problems.

Surprisingly, IATA foresees US airlines delivering the industry’s best economic results, suggesting they will see a small overall profit this year despite a fresh 7.5% fall in traffic following two previous years of decline.

IATA director-general Giovanni Bisignani described the outlook as grim. “Demand has deteriorated much more rapidly than could have been anticipated,” he said.
“The pressure on the balance sheet is extreme. The industry is in intensive care.”

Bisagnani pointed out airlines have a total debt of $170 billion and added: “There is little to indicate an early end to the downturn. . . expecting a significant recovery in 2010 would require more optimism than realism.”

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