The International Air Transport Association (IATA) has revised its airline financial forecast for 2009 to a global loss of $9 billion. This is nearly double the association’s March estimate of a $4.7 billion loss, reflecting a rapidly deteriorating revenue environment. IATA also revised its loss estimate for 2008 to $10.4 billion from the previous estimate of $8.5 billion.

The recession is the most significant factor impacting the industry’s bottom line. IATA’s revised forecast sees revenues declining an unprecedented 15 percent ($80 billion) from $528 billion in 2008 to $448 billion in 2009. Air cargo demand is expected to decline by 17 percent. In 2009, airlines are forecast to carry 33.3 million tons of freight, compared to 40.1 million tons in 2008. Passenger demand is expected to contract by 8 percent to 2.06 billion travelers compared to 2.24 billion in 2008. The revenue impact of falling demand will be further exaggerated by large falls in yields -- 11 percent for cargo and 7 percent for passenger.

The industry fuel bill is forecast to decline by $59 billion to $106 billion in 2009. Fuel will account for 23 percent of operating costs with an average price of oil at $56 per barrel (Brent). By comparison, the 2008 fuel bill was $165 billion (31 percent of costs) at an average price of $99 per barrel. Over the last decade, labor productivity improved by 71 percent. Fuel efficiency increased by 20 percent and load factors rose by 7 percentage points. The dramatic downturn in demand could push non-fuel unit costs higher, which cannot be cut in proportion. Cash reserves of $70 billion (13 percent) of revenues are much stronger than the 9 percent reserve that airlines had in 2000. Some of this is being funded by the $170 billion industry debt or by asset sales.

Global load factors for the first quarter of 2009 are down about 3 percentage points compared to the previous year. This is less than the decrease experienced in some recent crises as a result of airlines better matching capacity to falling demand. Nonetheless, the 4,000 aircraft expected to enter the commercial aviation fleet in the next three years will make this an ongoing challenge. Consolidation within political borders (including Air France-KLM, Lufthansa-Swiss, Delta-Northwest, Cathay Pacific-Dragonair) has created stronger players. But archaic limitations on ownership continue to prevent broader consolidation and partnerships across borders.

Carriers in all regions are expected to report losses in 2009. North American carriers are expected to show a loss of $1 billion. This is significantly better than the $5.1 billion loss in 2008. Limited hedging by U.S. carriers exposed the U.S. industry to rising fuel prices in 2008. This turned into an advantage in 2009 by giving U.S. carriers access to lower spot prices. Early capacity cuts are also helping. European carriers are expected to post losses of $1.8 billion with collapsing demand for premium services in all major markets served by the region’s carriers (intra-Europe, North Atlantic and Europe to Asia). Asia-Pacific carriers will post the largest losses at $3.3 billion. Japan, the region’s largest market, is in deep recession. The growth markets of China and India are delivering major losses as export-driven demand slows. This is a slightly better performance than the $3.9 billion that the region’s carriers lost in 2008.

Middle East carriers, despite strong traffic growth, will see losses deepen to $1.5 billion. The region’s intercontinental hubs are vulnerable to recessionary impacts in both European and Asian source markets. Latin American carriers are expected to post a loss of US$900 million, as the impact of the recession in the U.S. and China weakens demand for the region’s commodities. African carriers are expected to see losses of $500 million. This is the result of a loss of market share combined with the impact of the recession. For more information, visit www.iata.org.

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