Source: AFP Author: 03/24/2009
Subject Concerned: Airlines Aviation Fuel
On Mar. 24, airline industry association International Air Transport Association (IATA) sharply increased its loss forecast for carriers to US$4.7 billion in 2009, which is set to be "one of the toughest years" that the sector has faced.
The new forecast, equivalent to EUR3.4 billion, by the IATA marked a sharp rise from the US$2.5 billion in losses for 2009 that it predicted in December.
The industry group also raised its estimate of total airline losses for 2008 from US$8.0 billion to US$8.5 billion, blaming a "very sharp fall in premium travel and cargo travel".
"2009 is shaping up to be one of the toughest years that the airline industry has ever faced," said Giovanni Bisignani, IATA's director general, who also described the year as "grim".
While the forecast losses for 2009 were barely a fraction of the US$13 billion the industry lost in 2001 following the September 11 attacks in New York, Bisignani pointed to rapidly deteriorating revenues to stress the severity of the current crisis.
In December, the industry association forecast revenues would fall US$35 billion or 6.5 per cent for 2009, but on Mar. 24, it raised the loss to US$62 billion or 12 per cent.
Bisignani called it a "shocking difference". The industry is particularly hurt by the fall in premium traffic, or first class and business class seats, where airlines typically make their money.
Although the airline industry's prospects may improve towards the end of the year, "expecting a significant recovery in 2010 would require more optimism than realism", Bisignani insisted.
"Given the scale of this crisis and the impact on premium traffic and revenues, even with the best of optimism, I do not expect a significant recovery in 2010. This impact of this crisis will be with us for some time," he warned.
The only bright spot is falling fuel prices, noted Bisignani. Oil prices have plunged from a peak of over US$140 a barrel last July to around US$50 now.
However, some airlines anticipated that prices would continue soaring and therefore hedged or took out forward contracts based on the higher prices last year.
They are now paying elevated prices despite the fall, IATA explained.
Overall demand is projected to continue to slide this year, with passenger traffic shrinking by 5.7 per cent over the year.
Asia-Pacific carriers are expected to be the worst hit, with the biggest losses to be posted by these airlines amounting to US$1.7 billion this year as demand tumbles 6.8 per cent.
European carriers are forecast to post US$1.0 billion in losses while Middle East carriers are seen losing US$900 million.
Only North American carriers would post a profit of US$100 million, as they benefited from having trimmed capacity earlier and lower fuel prices, according to IATA.