IATA: Recession and hedging losses weaken carrier profitability
By Lori Ranson
Four billion in losses bled by airlines during the fourth quarter have triggered IATA to project net losses of $8 billion for 2008, a widening of previous estimates of $5 billion in losses for the year.
A large number of airlines racked up losses on their hedging portfolios during the last three months of 2008 as prices took a wild swing from a high of $147 per barrel in July to as low as $30 recently.
IATA believes prices have bottomed out at $40 per barrel following production cuts by OPEC and bank and economic bailout packages being developed around the world.
"Unfortunately, many airlines have part of their fuel bill partially locked, through hedging, into higher prices," says IATA. "Hedging losses were a large part of the larger than expected reported 4Q losses." The association offered that assement and latest statistics in an airline financial report released today.
As carriers attempt to rework their hedging portfolios IATA warns freight volumes continued to plummet in January, sliding 23.2%. The association explains manufacturers are attempting to cut large inventories built up at the end of 2008 relative to sales, which results in cuts in air freight.
Passenger statistics also continue to weaken, falling 5.6% year-over-year in January. Carriers in September of last year began cutting international routes, as January capacity in that sector fell by roughly 2%. Middle Eastern carriers have grown capacity 10.8% during that time, spurring a 5.4% drop in load factors. By contrast, capacity by Asia-Pacific carriers has fallen 4.3%.
Airlines are continuing their efforts to adjust their fleet size to current economic conditions as 73 aircraft were placed into storage in January, IATA explains, and 26 older aircraft were retired.
The overall global fleet continued to shrink in January with 93 aircraft being delivered, six fewer than exited service for the month. IATA explains in the last five months 632 older aircraft, or roughly 2%-3% of the fleet, exited service as they were replaced by 441 aircraft.
Plunging demand also hit equity markets for airlines in February as IATA says airline stocks during the month fell 7%.
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