Kuala Lumpur - The International Air Transport Association (IATA) revised its airline financial forecast for 2009 to a global loss of US$9 billion. This is nearly double the association’s March estimate of a US$4.7 billion loss, reflecting a rapidly deteriorating revenue environment. IATA also revised its loss estimate for 2008 to US$10.4 billion from the previous estimate of US$8.5 billion.

“There is no modern precedent for today’s economic meltdown. The ground has shifted. Our industry has been shaken. This is the most difficult situation that the industry has faced. After September 11, revenues fell by 7%. It took three years to recover lost ground, even on the back of a strong economy. This time we face a 15% drop—a loss of revenues of US$80 billion—in the middle of a global recession. Our future depends on a drastic reshaping by partners, governments and industry. We cannot bear the cost of government micro-regulation, crazy taxation and partners abusing their monopoly power,” said Giovanni Bisignani, IATA’s Director General and CEO in his State of the Industry address to 500 of the industry’s top leaders gathered in Kuala Lumpur for the 65th IATA Annual General Meeting and World Air Transport Summit.

Recession is the most significant factor impacting the industry’s bottom line. IATA’s revised forecast sees revenues declining an unprecedented 15% (US$80 billion) from US$528 billion in 2008 to US$448 billion in 2009.

Air cargo demand is expected to decline by 17%. In 2009, airlines are forecast to carry 33.3 million tonnes of freight, compared to 40.1 million tonnes in 2008. Passenger demand is expected to contract by 8% to 2.06 billion travelers compared to 2.24 billion in 2008. The revenue impact of falling demand will be further exaggerated by large falls in yields—11% for cargo and 7% for passenger.

Bisignani noted risks and challenges:

  • Fuel bill: The industry fuel bill is forecast to decline by US$59 billion to US$106 billion in 2009. Fuel will account for 23% of operating costs with an average price of oil at US$56 per barrel (Brent). By comparison, the 2008 fuel bill was US$165 billion (31% of costs) at an average price of US$99 per barrel. “The risk that we have seen in recent weeks is that even the slightest glimmer of economic hope sends oil prices higher. Greedy speculation must not hold the global economy hostage. Failure to act by governments would be irresponsible,” said Bisignani.
  • Efficiency gains: Over the last decade, labor productivity improved by 71%. Fuel efficiency increased by 20% and load factors rose by 7 percentage points. The dramatic downturn in demand could push non-fuel unit costs higher, which cannot be cut in proportion.
  • Stronger Cash Reserves: Cash reserves of US$70 billion (13%) of revenues are much stronger than the 9% reserve that airlines had in 2000. Some of this is being funded by the US$170 billion industry debt or by asset sales. “We are in a better cash position than when we faced the challenges of September 11. But our pockets are not that deep. A long L-shaped recovery could drain the industry of cash,” said Bisignani.
  • Careful Capacity Management: Global load factors for the first quarter of 2009 are down about 3 percentage points compared to the previous year. This is less than the falls experienced in some recent crises as a result of airlines better matching capacity to falling demand. Nonetheless, the 4,000 aircraft expected to enter the commercial aviation fleet in the next three years will make this an ongoing challenge.
  • Strong Partnerships: Consolidation within political borders (including Air France-KLM, Lufthansa-Swiss, Delta-Northwest, Cathay Pacific-Dragonair) has created stronger players. But archaic limitations on ownership continue to prevent broader consolidation and partnerships across borders.

Carriers in all regions are expected to report losses in 2009.

  • North American carriers are expected to show a loss of US$1.0 billion. This is significantly better than the US$5.1 billion loss in 2008. Limited hedging by US carriers exposed the US industry to rising fuel prices in 2008. This turned into an advantage in 2009 by giving US carriers access to lower spot prices. Early capacity cuts are also helping.
  • European carriers are expected to post losses of US$1.8 billion with collapsing demand for premium services in all major markets served by the region’s carriers (intra-Europe, North Atlantic and Europe to Asia).
  • Asia-Pacific carriers will post the largest losses at US$3.3 billion. Japan, the region’s largest market, is in deep recession. The growth markets of China and India are delivering major losses as export-driven demand slows. This is a slightly better performance than the US$3.9 billion that the region’s carriers lost in 2008.
  • Middle East carriers, despite strong traffic growth, will see losses deepen to US$1.5 billion. The region’s intercontinental hubs are vulnerable to recessionary impacts in both European and Asian source markets.
  • Latin American carriers are expected to post a loss of US$900 million, as the impact of the recession in the US and China weakens demand for the region’s commodities.
  • African carriers are expected to see losses of US$500 million. This is the result of a loss of market share combined with the impact of the recession.

The industry crisis is making liberalization even more critical. “We cannot manage in these unprecedented times with one hand tied behind our back. Airlines need the same commercial freedoms that every other industry takes for granted—access to global markets and capital,” said Bisignani.

In a similar vein, Bisignani urged governments to avoid protectionist policies as they stimulate economies. “The forces of de-globalization are gathering strength. World trade is already suffering with a 15% downturn. Protectionism is the enemy of global prosperity. In the 1930s, it prolonged the recession. And it will not work today. To build a strong global economy, we must fight hard to keep the world trading,” said Bisignani.

Corporate Communications
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Email: corpcomms@iata.org

Notes for Editors:

  • IATA (International Air Transport Association) represents some 230 airlines comprising 93% of scheduled international air traffic.
  • IATA excludes “mark-to-market” fuel hedging losses from 2008 net losses. As these losses are realized in cash terms, they are included in 2009 net losses.