Grim prospects for Airlines

March 24: Geneva – Amid an air of gloom in the aviation industry, the International Air Transport Association (IATA) today announced a pessimistic outlook for the global air transport industry with potential losses of US$4.7 billion in 2009.

In only three months IATA has increased its forecast by US$2.2 billion, reflecting the rapid deterioration of the global economic conditions. Industry revenues are expected to fall by nearly 12% – this compares with just a 7% fall after the events of 11 September 2001. “The state of the airline industry today is grim,” said Giovanni Bisignani, IATA’s Director General and CEO. “Demand has deteriorated much more rapidly with the economic slowdown than could have been anticipated a few months ago. Combined with an industry debt of US$170 billion, the pressure on the industry balance sheet is extreme.”

Falling fuel prices are helping to curb even larger losses. “Fuel is the only good news,” said Bisignani. “But the relief of lower fuel prices is overshadowed by falling demand and plummeting revenues. The industry is in intensive care. Airlines face two immediate fundamental challenges: conserving cash and carefully matching capacity to demand.” IATA also revised its forecast losses for 2008 from US$5 billion to US$8.5 billion; the fourth quarter of 2008 was particularly difficult as carriers reported large hedging-related losses and a very sharp fall in premium travel and cargo traffic.

Regional differences remain significant – only the USA market is expected to return a modest profit, estimated at US$100 million. Elsewhere Asia will be the hardest hit, with losses estimated at US$1.7 billion closely followed by Europe at US$1 billion.

If there is a positive message, it’s that the deterioration forecast for 2009 had already happened by January, but weak consumer and business confidence is expected to keep spending and demand for air transport low. “The prospects for airlines are dependant on economic recovery,” said Bisignani. “It will be a grim 2009. And while prospects may improve towards the end of the year, expecting a significant recovery in 2010 would require more optimism than realism.” He also cautioned that this crisis must bring change: “Recovery will not come without change. There is no doubt that this is a resilient industry capable of catalysing economic growth. But we are structurally sick. Bailouts are not the prescription to return to health. Access to global capital, the ability to merge and consolidate and the freedom to access markets are needed to run this industry as normal profitable business.”

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