IATA spells out doom
May 23, 2009 10:00 pm
IATA’s latest quarterly assessment of the outlook for the airline industry is doom laden. There is a substantial deterioration in economic conditions since IATA’s last forecast in December 2008 when economists expected world growth of 0.9% in 2009 and now a decline of 1.9% is forecast. Cargo volumes in 2009 are now expected at -13% and passenger traffic at -5.7%, says IATA. Together with declining yields, this implies an unprecedented 12% fall in revenues.
Whilst airlines are reducing capacity it is the case that, except in US, they are lagging the fall in demand. At least fuel costs are much lower this year on the basis of $50/barrel oil and there are smaller hedging losses. It is now considered that fuel cost reductions and capacity-related savings just about match the collapse in revenues.
IATA says that industry wide operating profits are stable at an extremely low level and net losses are narrowing from $8.5 billion in 2008 to $4.7 billion in 2009. However, the net losses of $4.7 bilion this year are worse than $2.5 billion loss predicted in the December forecast. Moreover, improvement is concentrated in the US where capacity cuts match demand slump.
Asian airline losses are smaller purely due to lower losses on fuel hedges but losses will mount during 2009 in Europe, Latin America, the Middle East and Africa.
There are some tentative signs of the air cargo business reaching the bottom of the curve but the passenger market is still in decline. Recovery is dependent on renewed economic growth and so 2010 looks like the earliest time for recovery but there is likely to be a delay until 2011 for a strong rebound.
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