Airlines set for massive losses says IATA
[September 3rd 2008]
Airlines will post losses of $5.2 billion in 2008 says the International Air Transport Association in its revised financial forecast for the industry.
"The situation remains bleak. The toxic combination of high oil prices and falling demand continues to poison the industry's profitability," comments IATA director general and CEO, Giovanni Bisignani.
The high price of oil continues to be the main problem facing the airline industry. "While there has been some relief in the oil price in recent months, the year-to-date average is $113 per barrel. That's $40 per barrel more than the $73 per barrel average for 2007, pushing the industry fuel bill up by $50 billion to an expected $186 billion this year," says Bisignani.
And the airline crisis is not likely to get any better in the near future. In its initial outlook for 2009 IATA predicts that oil prices will be $110 per barrel and expects that airlines' fuel bills will rise to 40% of operating costs.
"While we expect the bottom line to improve by about $1 billion next year, the industry will be US$4.1 billon in the red" suggests Bisignani.
"This crisis is re-shaping the industry in more severe ways than the demand shocks of SARS or 9/11. When fuel goes from 13% of your costs to 40% in seven years with an increased cost implication of $183 billion, you simply cannot continue to do business in the same way. Fundamental change is needed," he continues.
IATA believes the change that is needed is greater commercial freedom for airlines, and next month in Istanbul it will facilitate an Agenda for Freedom dialogue to encourage discussion on the challenges facing airlines.
"More airlines have gone bust in 2008 than in the aftermath of 9/11. To cure the structural sickness of the industry, made all the more obvious by the high price of oil, we need a strong dose of liberalisation. The US-EU talks later this month are one opportunity to address ownership restrictions in an important market," Bisignani says.
In July IATA reports that year on year passenger demand growth fell to 1.9%, the lowest for five years. At the same time airline capacity increased by 3.8%, suggesting that although airlines have started to cut flights they are still not keeping pace with the fall in demand. As a result occupancy levels on planes were down to 79.9%, a fall of more than 1% compared to July 2007.
Written by: Nick Purdom
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