Skip to main content

Test Home

Search

You are here: Home » Pressroom » Speeches
  • Print this page
  • Share this page

Date: 24 March 2009

March Forecast Press Conference, Geneva

Good morning to everyone and thank you for joining us.

These are critical times for the global economy and for aviation.  You all have the release so let me highlight some of the key points and then we will take questions.

2009 is shaping up to be one of the toughest years that the airline industry has ever faced. Today, we are announcing that we expect losses of US$4.7 billion for 2009. Our previous forecast, issued in December, was for a loss of US$2.5 billion. The most shocking difference between the two forecasts is the revenue line. In December, we were predicting a US$35 billion drop in revenues - 6.5%. With today’s forecast, the loss in revenue has grown to US$62 billion - 12%. This crisis is re-sizing and re-shaping this industry. What has happened in the last few months?

Demand

First demand has fallen sharply. In January, passenger demand fell 5.6% exaggerated by a 16.7% fall in premium traffic, where airlines make their money. An even bigger indicator is cargo, 23.2% down in January. This is a leading indicator not just for airlines but for the whole economy.  Air cargo represents 35% of the value of goods traded internationally. A slowdown in cargo means that consumers are not buying and manufacturers are not producing. And we can fully expect that the economic downturn will get worse before it gets better.

For the full year we now project a 5.7% drop in passenger traffic and a 13% fall in cargo. A 13% forecast for cargo, when we started the year 23.2% down, tells us that we expect some improvement when depleted inventories are restocked. But a demand fall of this magnitude is severe and carriers are not able to take capacity out fast enough to match demand. Overall the mis-match of demand and capacity will lead to yields falling by 4.3%.

Fuel

The only good news is fuel. Our revised forecast is based on an average of US$50 per barrel for oil (Brent)  At that level, the industry fuel bill will be US$116 billion.  This represents 25% of costs in 2009 compared to 32% in 2008 and is a US$52 billion drop compared to last year.  This is partly related to the price and partly related to the reduction in capacity.  The improvement in the fuel bill is not enough.

Revenues

The loss in revenues is now driving increasing losses.  As I mentioned earlier, revenues will fall by 12% or US$62 billion. In 2008, we were a US$530 billion industry and this year we will shrink to US$467 billion.

Resizing the industry will be much tougher than the adjustments we saw after 9.11 or SARS. The industry is in intensive care.

Our biggest barometer to measure this are suspensions from our US$350 billion settlement system. In the last 15 months, we suspended nearly 40 airlines because they could not pay their bills.

There are two priorities for survival; conserving cash and adjusting capacity to demand.

Regional

Unlike previous crises, which had a geographic focus, this one is global.

Worst hit is Asia with losses expected to be US$1.7 billion. The largest market, Japan, is in deep recession with an expected 5.5% drop in GDP. China is recovering domestically but international business is being held back by falling trade volumes. And India is suffering from slowing demand high costs and poor infrastructure.

North America will be the best performing region. Why? Because they cut capacity early and, with little hedging, are benefiting from low spot fuel prices. They will basically break even.

Europe’s carriers continue to suffer from fuel hedges put in place last year. Even as the effect of these wears off, with recessions in Europe, Japan and the US, demand falls will result in a US$1 billion loss.

Latin America and Africa are expected to lose US$600 million each. Given the relatively small size of the industry in these regions, these are big losses.

The Middle East will be the only region to maintain growth. But the 1.2% increase in demand will not keep up with the 3.8% increase in capacity. As a result, airlines in the region will lose US$900 million.

Looking Ahead

So we see tough times everywhere in 2009. This is a resilient industry and we do expect better prospects towards the end of the year and into 2010. But given the scale of this crisis, even with the best of optimism, I do not expect a significant recovery in 2010. This impact of this crisis will be with us for some time.

Priorities

As I mentioned, the survival mode priorities are conserving cash and adjusting capacity. At the same time we must look ahead. Airlines are keeping their number one priority in focus, that is safety. By the end of this month, all IATA members will have achieved  IOSA registration. It has been a tough journey and along the way we lost some 17 members. Safety is our top priority and IOSA is a condition of membership. We have worked with all of our members to raise the bar on safety - everywhere.

Our financial situation is weak but unlike the banks, we are not asking for bailouts. But the looming challenge is taxation. Governments will be looking for cash to pay for their banking investments. Already in 2008, we saw nearly US$6.9 billion in new taxation. Much of this was branded as environment, although little or none of the funds are invested in environment-related activities. So we must be prepared to fight crazy taxation.

At the same time we are asking governments for greater commercial freedoms. Consolidation is a must for this industry but outdated restrictions on ownership and control prevent this. We must use this crisis as an opportunity to modernize this structure so that airlines - that facilitated the global village, can become global businesses. Our Agenda for Freedom is focused on achieving progress with governments on both market access and ownership so that airlines can run as normal businesses.

And finally, as we approach Copenhagen, environment is firmly on the industry agenda. Airlines have done a good job, improving fuel efficiency and environmental performance. Our task is to focus governments on measures that help reduce emissions in a global system coordinated through ICAO as agreed in the Kyoto protocol. Next week in Geneva, we hold a cross industry Environment Summit to move this priority forward.

Questions

With that, I will close my comments and look forward to your questions.


 

ADVERTISEMENT


Additional information

© International Air Transport Association (IATA) 2014. All rights reserved.