IATA Sees Tough Times Ahead for Airlines

The airlines will lose US$5.2 billion in 2008 in part due to slowing demand and high oil costs, according to revised estimated by the International Air Transport Association (IATA). IATA says its revised industry financial forecast sees the global airline industry posting losses of US$5.2 billion in 2008 based on an average crude oil price of US$113 per barrel (US$140 for jet fuel).

“The situation remains bleak. The toxic combination of high oil prices and falling demand continues to poison the industry’s profitability. We expect losses of US$5.2 billion this year,” said Giovanni Bisignani, IATA’s director general and CEO.  “While there has been some relief in the oil price in recent months, the year-to-date average is US$113 per barrel. That’s US$40 per barrel more than the US$73 per barrel average for 2007, pushing the industry fuel bill up by US$50 billion to an expected US$186 billion this year.” Fuel is expected to rise to 36 percent of operating costs, up from 13 percent in 2002.

IATA also announced industry traffic data for July that showed a continued slowing of demand. July year-on-year passenger demand growth fell to 1.9 percent—the lowest in five years. Capacity increased by double that—3.8 percent—indicating that service cuts are not keeping pace with the fall in demand. This pushed the load factor for the month to 79.9 percent, a drop of more than 1 percent compared to July 2007. The surprise of July was an 0.5 percent drop in passenger demand by Asia-Pacific carriers partly attributable to a change in Chinese visa requirements, but also showing that economic weakness is spreading to previously robust economies.

As a result of the weaker economic outlook, IATA significantly revised downward its traffic forecast for domestic and international markets combined. Passenger traffic is now expected to grow on average by 3.2 percent (was 3.9 percent) and air freight volumes by just 1.8 percent (was 3.9 percent). This is only half the pace of expansion seen in 2007 and is boosted by the stronger growth seen at the start of the year. Strong traffic growth allowed the industry to partly absorb the rise in fuel costs from 2003-2007. This is no longer the case.

“While some regions will show small profits, the negative impact of the industry crisis is universal,” said Bisignani. North American carriers are expected to post losses of US$5.0 billion in 2008, making them the hardest hit by this industry crisis.

IATA also announced its initial outlook for 2009, with the difficult business environment expected to continue. Most economies are expected to deliver even weaker economic growth next year, which will negatively impact air travel and freight. With an expected oil price of US$110 per barrel (US$136 for jet fuel) and continued weak growth (2.9 percent), industry losses are expected to continue at US$4.1 billion. The 2009 fuel bill is expected to rise, as hedging offers less protection, to US$223 billion comprising 40 percent of operating expenses.

Visit www.iata.org


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