Falling yields, rising fuel costs to raise airline industry losses to $11 billion: IATA

The International Air Transport Association (IATA) today announced a revised global financial forecast predicting airline losses totaling $11 billion in 2009.

This is $2 billion worse than the previously projected $9 billion loss due to rising fuel prices and exceptionally weak yields. Industry revenues for the year are expected to fall by $80 billion (15 per cent) to $455 billion compared with 2008 levels.

IATA also revised its loss estimates for 2008 from a loss of $10.4 billion to a loss of $16.8 billion. This revision reflects restatements and clarification of the accounting treatment of very large revaluations to goodwill and fuel hedges. IATA industry profit figures strip-out such extra-ordinary items which are not realized in cash terms.

''The bottom line of this crisis - with combined 2008-9 losses at $27.8 billion - is larger than the impact of 9/11,'' said Giovanni Bisignani, IATA's director general and CEO.
Industry losses for 2001-2002 were $24.3 billion.

''This is not a short-term shock. $80 billion will disappear from the industry's top line. That 15 per cent of lost revenue will take years to recover. Conserving cash, careful capacity management and cutting costs are the keys to survival. The global economic storm may be abating, but airlines have not yet found safe harbor. The crisis continues,'' said Bisignani.

Three main factors are driving the expected losses:

• Demand: Passenger traffic is expected to decline by 4.0 per cent  and cargo by 14 per cent  for 2009 (compared to declines of 8.0 per cent  and 17 per cent  respectively in the June forecast). By July, cargo demand was -11.3 per cent  and passenger demand was -2.9 per cent . While both are improvements over the lows of -23.2 per cent  for cargo (January) and -11.1 per cent  for passenger (March), both markets remain weak.
• Yield: Yields are expected to fall 12 per cent  for passenger and 15 per cent  for cargo, compared to declines of 7 per cent  and 11 per cent  respectively in the June forecast. The fall in passenger yield is led by the 20 per cent  drop in demand for premium travel. Cargo utilization remains at less than 50 per cent  despite the removal of 227 freighters from the global fleet. There is little hope for an early recovery in yields in either the passenger or cargo markets.
• Fuel: Spot oil prices have been driven up sharply in anticipation of improved economic conditions. Oil is now expected to average $61 per barrel (Brent) for the year (up from $56 per barrel in the June forecast). This will add $9 billion in cost for a total expected fuel bill of $115 billion.