Airlines on course for $2.5bn loss in 2009

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The airline industry will suffer a $2.5bn net loss next year despite the big fall in the oil price, as carriers are overtaken by falling demand for air travel amid the deepening recession in several leading economies.

“The outlook is bleak. The chronic industry crisis will continue into 2009. We face the worst revenue environment in 50 years,” Giovanni Bisignani, director general of the International Air Transport Association (Iata), said on Tuesday.

Iata said all regions apart from the US were expected to report larger losses in 2009 than this year.

Including 2009, the global aviation industry will have been in net loss for eight of the last nine years, according to the Iata forecasts, after making net profits in only 2000 and 2007 during the decade.

Net losses from 2001 to 2006 totalled $41.6bn, with further losses of $5bn forecast for this year and $2.5bn for 2009.

Iata forecast a $35bn fall in aviation industry revenues to $501bn next year, the first drop in revenues since the two consecutive years of decline in 2001 and 2002.

Passenger traffic is forecast to fall by 3 per cent in 2009 following growth of 2 per cent this year, the first decline since a drop of 2.7 per cent in 2001, when the industry was hit by weakening economic growth and then by the plunge in demand for air travel following September 11 terrorist attacks.

Cargo traffic is forecast to fall even more steeply, with a decline of 5 per cent following a 1.5 per cent drop in 2008.

The air cargo market is regarded as an important early indicator of the health of the world economy. Air freight accounts for 35 per cent of the value of internationally traded goods, chiefly high value shipments.

The contraction of air cargo traffic began in June and Mr Bisignani said the 7.9 per cent year-on-year fall in October was “a clear indication that the worst is yet to come – for airlines and the slowing global economy.”

The “ferocity of the economic crisis” had overshadowed the restructuring gains achieved by airlines during recent years, said Mr Bisignani, and carriers were struggling to match capacity with the expected 3 per cent drop in passenger demand for 2009.

“The industry remains sick,” he said.

Net losses in the Asia-Pacific are forecast to more than double next year, from $500m to $1.1bn. The region would be disproportionately hit by the steep decline in cargo traffic, as Asia-Pacific airlines account for 45 per cent of the global air freight market, Iata said.

Losses for European airlines would increase tenfold to $1bn with the main economies in recession, high fuel prices partially locked in by hedging policies at many carriers, and the weaker euro against the US dollar exaggerating the impact.

Overall industry losses are forecast to halve, from $5bn this year to $2.5bn – largely due to better results from North American carriers, which are forecast to move from a $3.9bn loss this year to a modest $300m net profit in 2009.

The region’s airlines were hardest hit by the surge in fuel prices with very limited hedging in place.

Iata said the lack of hedging was allowing North American airlines to take full advantage of the rapidly declining spot fuel prices – the price of crude has fallen from a peak of $147 a barrel in July to around $45.

US carriers’ early move to cut domestic capacity by around 10 per cent had also given them a head-start in combating the recession-led fall in demand.

Airlines are grounding a growing number of aircraft in the face of the deepening recession in many markets with an average of almost 200 a month being parked in both September and October, compared with a monthly average of six in 2007.

Capacity growth slowed sharply in October and further substantial cuts are planned in US domestic capacity during the winter season. However, Iata said the cuts in capacity were not keeping pace with falling traffic, leaving airlines with more empty seats.

The association forecast that traffic would fall faster than capacity in international markets in the months ahead.

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