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Thursday September 17, 2009

Airlines in for bigger US$11bil loss


IATA revises upward predicted losses for global airline industry this year to US$11bil

PETALING JAYA: The International Air Transport Association (IATA) has announced a revised forecast for the global airline industry, predicting airline losses totalling US$11bil in 2009, US$2bil higher than the US$9bil estimated previously.

In a statement released in Washington, the United States, the association said the projected higher loss this year was due to rising fuel prices and exceptionally weak yields.

Giovanni Bisignani

IATA sees global airline losses continuing into 2010 with the industry expected to report a US$3.8bil net loss.

The 2010 forecast was based on a “limited revival of growth in traffic volumes” of 3.2% for passenger and 5% for cargo, “very little increase in yields” of 1.1% for passenger and 0.9% for cargo and oil price at US$72 per barrel, it said.

Industry revenues for 2009 were expected to fall by US$80bil, or 15%, to US$455bil compared with last year, according to IATA.

The association also revised its loss estimates for 2008 from a loss of US$10.4bil to a loss of US$16.8bil.

“This revision reflects re-statements and clarification of the accounting treatment of very large revaluations to goodwill and fuel hedges,” it said.

IATA director-general and chief executive officer Giovanni Bisignani said the combined 2008 and 2009 losses at US$27.8bil were larger than the impact of Sept 11, noting that industry losses for 2001 to 2002 were US$24.3bil.

“This is not a short-term shock; US$80bil will disappear from the industry’s top line. That 15% of lost revenue will take years to recover,” he said, adding that conserving cash, careful capacity management and cutting costs were the keys to survival.

“The global economic storm may be abating but airlines have not yet found safe harbour. The crisis continues,” he added.

The association said the issues of demand, yield and fuel were the main factors driving the expected higher losses this year. Passenger traffic was expected to decline by 4% and cargo by 14% this year, it said.

The yields were expected to fall 12% for passenger and 15% for cargo while the spot oil prices had been driven up sharply in anticipation of improved economic conditions, it added.

Bisignani said the optimism in the global economy had seen passenger and freight volumes rise, but that was the only bright spot.

“Rising costs and falling yields have squeezed airlines’ cashflows. The sharp decline in yields will leave a lasting mark on the industry’s structure.

“And revenues are not likely to return to last year’s levels until 2012 at the earliest,” he said, noting that the situation was critical with cashflows substantially down over the first half of the year.

“Larger carriers have built-up cash reserves of US$15bil – a war chest that is warding off a major cash crisis. But the outlook for small and medium-sized carriers – with limited options to raise cash – is much more severe,” he said.

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