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Grim outlook for airlines

Fall in demand for flights

[March 24th 2008]

Plane taking off

Airline losses in 2009 will be $4.7 billion, much worse than the December forecast of $2.5 billion.

This is the latest prediction of the International Air Transport Association (IATA), which represents 230 airlines accounting for 93% of scheduled international air traffic.

The revised forecast reflects the rapid deterioration of global economic conditions says IATA. Airline revenues are expected to fall by 12% to $467 billion. This compares to a 7% fall after 9/11.

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

“Combined with an industry debt of US$170 billion, the pressure on the industry balance sheet is extreme,” he adds.

Passenger demand for air travel is projected to fall by 5.7% over the year. But falling fuel prices will offer some relief to struggling airlines. Fuel bills are expected to drop to 25% of operating costs, compared to 32% 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,” says Bisignani.

There will be significant regional differences in the performance of airlines according to IATA. Airlines in Europe are predicted to lose $1 billion in 2009. Capacity cuts of 5.3% will not keep pace with a fall in passenger demand of 6.5% making airlines less profitable.

But airlines in North America are expected to make a profit of $100 million. Here a 7.5% fall in passenger numbers is expected to be matched by a 7.5% cut in capacity. Airlines in this region are said to be benefiting from careful capacity management and lower spot prices for fuel.

Bisignani says the airline crisis must bring change. 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,” he says.

Written by: Nick Purdom

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