Published December 10, 2008

Airline red ink to spill into next year

Worst revenue conditions in 50 years; Asia-Pac may be hit hard: Iata

By VEN SREENIVASAN

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(SINGAPORE) These are the worst of times for the aviation industry in half-a-century and they will continue through next year.

Mr Bisignani: Industry crisis will continue into 2009 with US$2.5b losses

The latest data from the International Air Transport Association (Iata) indicates that no region would be spared, including the Asia-Pacific, where airlines could see their losses doubling from this year's forecasted US$500 million to more than US$1.1 billion by the end of 2009.

'The outlook is bleak. The chronic industry crisis will continue into 2009 with US$2.5 billion in losses. We face the worst revenue environment in 50 years,' said Giovanni Bisignani, Iata's director general and CEO, at its Global Media Day in Geneva yesterday.

But Iata, which represents some 230 airlines comprising 93 per cent of scheduled international air traffic, has reduced this year's projected industry losses to US$5 billion, from its earlier projection of US$5.2 billion.

But the picture, going into next year, is ugly.

Industry revenues are expected to decline to US$501 billion, a fall of US$35 billion from the US$536 billion in revenues forecasted for 2008.

Yields will decline by 3 per cent (and an even worse 5.3 per cent when adjusted for exchange rates and inflation).

Passenger traffic is expected to decline by 3 per cent in 2009, following growth of 2 per cent in 2008 - the first decline since 2001.

Cargo traffic is expected to fall by 5 per cent, following a drop of 1.5 per cent in 2008.

The 2009 oil price is expected to average US$60 per barrel, totalling up an industry bill of US$142 billion. This would be US$32 billion lower than in 2008, when oil averaged US$100 per barrel.

The reduction in industry losses from 2008's US$5 billion to US$2.5 billion in 2009 is primarily due to better performance of North American carriers.

These carriers, which were hardest hit by high fuel prices with very limited hedging, are expected to post the largest industry losses for 2008 at US$3.9 billion. But they quickly reduced domestic capacity by 10 per cent.

This will give them a headstart while their lack of hedging enables them to take full advantage of rapidly declining spot fuel prices. As a result, North American carriers are expected to post a small profit of US$300 million in 2009.

But the broader picture is grim.

Losses by Asia-Pacific carriers will more than double from the US$500 million in 2008 to US$1.1 billion in 2009.

With 45 per cent of the global cargo market, the region's carriers will be disproportionately impacted by the expected 5 per cent drop in global cargo markets next year, according to Iata.

The region's largest market - Japan - is already in recession, and its two main growth markets - China and India - are expected to see sharp slowdowns.

European carriers' losses will increase ten-fold to US$1 billion, as Europe's main economies slide into a deep recession, while Middle Eastern airlines will struggle to match huge capacity increases to demand, particularly on slowing long-haul connections.

Mr Bisignani painted a particularly gloomy picture for air cargo.

'Air cargo comprises 35 per cent of value of goods traded internationally,' he said. 'The 7.9 per cent decline in October is a clear indication that the worst is yet to come - for airlines and the slowing global economy.'

Airline stock prices have plummeted 40 per cent since September, underperforming the market as the industry chalked up net losses of some US$4 billion during the first three quarters of 2008.

Aircraft deliveries slowed to 78 in October, while the number of planes parked/mothballed surged to an average of almost 200 a month in September and October. Some thirty airlines have collapsed this year and at least a dozen more could hit the ground in the coming months.

Even Singapore Airlines was not spared, reporting a first-half profit of $682 million, down 26.8 per cent from $931.9 million in April-September 2007.