- Deep Recession,
Bigger Losses -
Geneva - The International Air
Transport Association (IATA) announced a revised outlook for the global
air transport industry with losses of US$4.7 billion in 2009. This is significantly
worse than IATA’s December forecast for a US$2.5 billion loss in 2009,
reflecting the rapid deterioration of the global economic conditions.
Industry revenues are expected to fall by 12.0%1 (US$62
billion) to US$467 billion. By comparison, the previous revenue decline,
after the events of 11 September 2001, saw industry revenues fall by
US$23 billion over the period of 2000 to 2002 (approximately 7.0% 2).
“The state of the airline industry today is grim. Demand has deteriorated
much more rapidly with the economic slowdown than could have been
anticipated even a few months ago. Our loss forecast for 2009 is now
US$4.7 billion. Combined with an industry debt of US$170 billion, the
pressure on the industry balance sheet is extreme,” said Giovanni
Bisignani, IATA’s Director General and CEO.
Demand is projected to fall sharply with passenger traffic expected to
contract by 5.7% over the year. Revenue implications of this fall will be
exaggerated by an even sharper fall in premium traffic. Cargo demand is
expected to decline by 13.0%. Both are significantly worse than the
December forecast of a 3.0% drop in passenger demand and a 5.0% fall in
cargo demand. Yields are expected to drop by 4.3%.
Falling fuel prices are helping to curb even larger losses. With an
expected fuel price of US$50 per barrel (Brent oil), the industry’s fuel
bill is expected to drop to 25% of operating costs (compared to 32% in
2008 when oil averaged US$99 per barrel). Combined with lower demand,
total expenditure on fuel will fall to US$116 billion (compared to US$168
billion in 2008).
“Fuel is the only good news. But the relief of lower fuel prices is
overshadowed by falling demand and plummeting revenues. The industry is
in intensive care. Airlines face two immediate fundamental challenges:
conserving cash and carefully matching capacity to demand,” said
IATA also revised its forecast losses for 2008 from US$5.0 billion to
US$8.5 billion. The fourth quarter of 2008 was particularly difficult as
carriers reported large hedging-related losses and a very sharp fall in
premium travel and cargo traffic.
Regional differences remain significant:
Asia Pacific: Carriers in this region continue to be hardest hit
by the current economic turmoil and are expected to post losses of US$1.7
billion (significantly worse than the previous loss forecast of US$1.1
billion). Japan, the region’s largest market is expected to see GDP drop
by 5.5% in 2009 with exports already in freefall. China has been
successful in stimulating demand in domestic markets with pricing
adjustments. International demand to and from China is expected to
contract by between 5% and 10% over the year. India, whose market for
international air services tripled in size between 2000 and 2008, is
expected to see capacity increase by 0.7% in 2009, while demand drops
between 2% and 3%. Overall, the region is expected to see a 6.8% fall in
demand but only a 4.0% drop in capacity.
North America: Carriers in this region are expected to deliver the
best performance for 2009 with a combined US$100 million profit. A
7.5% fall in demand is expected to be matched by a 7.5% cut in capacity.
Despite the worsening economic conditions, this is relatively unchanged
from the earlier forecast of a US$300 million profit. Carriers are
benefiting from careful capacity management and lower spot prices for
Europe: Europe’s carriers are expected to lose US$1 billion in 2009.
A forecast 2.9% fall in the continent’s GDP is expected to result in a
drop in demand of 6.5%. Capacity cuts of 5.3% will not keep pace with the
fall in demand, driving yields and profitability down.
Latin America: While Latin America is forecast to maintain
positive GDP growth in 2009, the collapse in demand for commodity
products is expected to see traffic plunge by 7.8%. Carriers are only
expected to be able to drop capacity by 3.8% resulting in losses of
Africa: African carriers are expected to produce 2009 losses of
US$600 million. This is six times the US$100 million lost in 2008. The continent’s
carriers are losing market share on long-haul routes. Demand is expected
to drop by 7.8% with only a 6.0% fall in capacity.
Middle East: Middle East will be the only region with demand
growth in 2009 (+1.2%). But this will be overshadowed by the impact of a
3.8% increase in capacity. While this is significantly below the
double-digit growth of previous years, the region continues to add
capacity ahead of demand. The result is expected to be a loss of US$900
million (a slight deterioration from the US$800 million loss recorded in
Much of the deterioration forecast for 2009 had already
happened by January. As manufacturers end their de-stocking there should
be a modest bounce in air freight as component shipping rises a little.
But weak consumer and business confidence is expected to keep spending
and demand for air transport low.
“The prospects for airlines are dependant on economic recovery. There is
little to indicate an early end to the downturn. It will be a grim 2009.
And while prospects may improve towards the end of the year, expecting a
significant recovery in 2010 would require more optimism than realism,”
Bisignani also cautioned that this crisis must bring change. “Recovery
will not come without change. There is no doubt that this is a resilient
industry capable of catalysing economic growth. But we are structurally
sick. The historical margin of this hyper-fragmented industry is 0.3%.
Bail-outs are not the prescription to return to health. Access to global
capital, the ability to merge and consolidate and the freedom to access
markets are needed to run this industry as normal profitable business.
This is IATA’s Agenda for Freedom - and a very cost effective solution
for governments desperate to stimulate their economies,” said Bisignani.
Access Bisignani's remarks
Director Corporate Communications
Tel: +41 22 770 2967
Notes for editors:
(International Air Transport Association) represents some 230
airlines comprising 93% of scheduled international air traffic.
- Net profit figures
exclude exceptional items associated with mergers and restructuring
as well as mark-to-market fuel hedging losses that have been
reported in profit and loss accounts. Recent changes to accounting
rules, requiring derivative transactions to be 'marked-to-market',
have significantly affected reported net profits for airlines in
2008. Many hedges taken out during the first half of 2008,
when fuel prices were surging, moved 'out of the money' late last
year when spot fuel prices fell back. Accounting rules now
require some of these accounting losses to be registered in the
P&L but others to be registered as a provision in the balance
sheet. Previously none of these 'non-cash' losses appeared in
the P&L and, in the interests of clarity and consistency, we
have removed 'mark-to-market' fuel hedging losses as far as possible
from the net profits figures we publish.
forecast details are available at http://www.iata.org/whatwedo/economics
rounded to nearest percentage point.
revenues in 2000 were US$329 billion. By 2002 this had dropped to