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Airlines set for huge losses in 2009

the latest forecast from the IATA

[December 10th 2008]

Airport scene

The airline industry will lose $2.5 billion next year according to the latest forecast from the International Air Transport Association.

“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,” comments IATA director general and CEO, Giovanni Bisignani.

IATA has also updated its forecast for 2008 to a loss of $5 billion, a slight improvement from the $5.2 billion forecast in September due to the rapid decline in fuel prices.

IATA represents 230 airlines around the world, which between them account for 93% of scheduled international air traffic. Next year the association says all regions except the US will report bigger losses in 2009 than in 2008.

Airlines in North America are expected to fare better than those in other regions because they have not hedged against fuel prices and can now take advantage of the lower price of oil. In contrast, airlines that have hedged – bought fuel in advance at higher prices – are now set to lose out again.

“North America will be the only region in the black, but the expected US$300 million profit is less than 1% of their revenue. 2009 will be another tough year for everyone,” says Bisignani.

This year airlines in North America are expected to suffer the biggest losses, totalling $3.9 billion, because they were hardest hit by high fuel prices with very limited hedging. But IATA adds that a 10% reduction in capacity on domestic flights in response to the fuel crisis has given airlines in North America a head-start in combating the fall in demand from passengers due to the recession.

Airlines in Europe are expected to suffer the biggest losses in 2009. IATA forecasts that losses will increase ten-fold to $1 billion. “Europe’s main economies are already in recession. Hedging has locked in high fuel prices for many of the region’s carriers in US dollar terms, and the weakened Euro is exaggerating the impact,” says IATA.

Airlines in Africa, the Middle East and Latin America are all expected to see losses double next year. But there are some encouraging comments. “Airlines have done a remarkable job of restructuring themselves since 2001. Non-fuel unit costs are down 13%. Fuel efficiency has improved by 19%. And sales and marketing unit costs have come down by 13%,” reports Bisgnani.

However, the airline crisis is clearly far from over. “The industry remains sick. And it will take changes beyond the control of airlines to navigate back into profitable territory,” Bisignani concludes.

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