2009 Outlook Darkens With Airline Losses
Robert Wall/Paris wall@aviationweek.com 
The International Air Transport Association (IATA) expects carriers to lose $4.7 billion this year as a result of a sharp 12% fall (or $62 billion) in revenue.
The industry forecast has quickly worsened and a solid recovery is not expected until 2011.
The steady decline in passenger and cargo business has forced IATA to revise its loss forecast for the year to $4.7 billion from $2.5 billion, with Asian carriers suffering the most and North American airlines expected to show the best return by delivering a $100 million profit owing to early moves to cut capacity.
This year is "the toughest year the airline industry has ever faced," says Giovanni Bisignani, IATA's director general. Even though industry-wide losses have been higher in the past, the huge dropoff in revenue is greater than before; revenue losses after the Sept. 11, 2001, terrorist attacks in the U.S. reached only around 7%.
The industry also is worse off now, Bisignani says, because it was leaner going into the crisis and since airlines are saddled with about $170 billion in debt.
The association also says that airlines lost $8.5 billion last year, not just $5 billion as first projected because of a particularly weak fourth quarter.
Airlines this year will see an average 5.7% drop in passenger numbers, a 13% fall in cargo and a 4.7% decline in yields, IATA warns. In December, it forecast only a 3% decline in passenger demand and a 5% fall in cargo.
The association has already had to suspend around 40 airlines from its ticket settlement system in the past 15 months because of their inability to make payments and, Bisignani says, "I am worried as a result of the deteriorating situation" that the picture could only worsen.
The airlines's problems are expected to ripple through the aircraft makers. By 2011, Airbus and Boeing combined deliveries are expected to drop around 30% to 700 units, says Brian Pearce, IATA's chief economist.
The one bright spot for the industry is that the fuel bill for airlines this year is expected to be down significantly from last year's level, at $116 billion, representing an average of 25% of total operating cost; it was 32% last year.
Although airlines have been rushing to reduce capacity - an industry-wide contraction of 6% is expected with premium available seat kilometers likely to be down more - Bisignani says capacity cuts will not start matching the drop in passenger volumes until next year.
Cargo, which entered a slowdown last year ahead of passenger traffic, should stabilize by year-end, Pearce says. "We are starting to see signs of light at the end of the tunnel in cargo," he notes.
In Asia, the industry is expected to rack up $1.7 billion in losses, with Japan in a serious recession, demand for Chinese good falling, and passenger volumes in India falling. Regional demand is expected to fall 6.8%, well ahead of the 4% capacity reduction.
Europe will see the second highest losses, of around $1 billion, with capacity cuts of 5.3% still falling short of the anticipated 6.5% demand decline.
The Middle East is one area where demand is expected to grow, with a forecast for 1.2%. But airlines there are still likely to generate a $900 million combined loss because capacity increases of 3.8% are outpacing passenger volumes.
Africa and Latin America will each see around $600 million in losses, but Bisignani warns that's a big number given the fragility of the small size of those two markets. Demand in both regions is expected to be off 7.8%.
North America's $100 million profit projection is revised downward from $300 million earlier, but leaves the region the only one in the black. Capacity and demand are expected to both fall 7.5%, with airlines benefiting from lower fuel prices.
AviationWeek.com photo of Seoul's Incheon airport: Benet Wilson
