IATA: US$5.6 billion loss as costs keep aviation in the red

THE International Air Transport Association (IATA) revised its financial outlook for 2010 to an expected US$5.6 billion global net loss, larger than the previously forecast loss of $3.8 billion. For 2009, IATA maintained its forecast of a $11 billion net loss.

"The world's airlines will lose $11 billion in 2009. We are ending an Annus Horribilis that brings to a close the 10 challenging years of an aviation Decennis Horribilis. Between 2000 and 2009, airlines lost $49.1 billion, which is an average of $5 billion per year," said IATA director general and CEO Giovanni Bisignani.

"The worst is likely behind us. For 2010, some key statistics are moving in the right direction. Demand will likely continue to improve and airlines are expected to drive down non-fuel unit costs by 1.3 per cent. But fuel costs are rising and yields are a continuing disaster. Airlines will remain firmly in the red in 2010 with $5.6 billion in losses," said Mr Bisignani.

Industry revenues are expected to rise year on year by $22 billion (4.9 per cent) to $478 billion in 2010. But revenues remain at $57 billion (-11 per cent) below the peak of $535 billion in 2008 and $30 billion below 2007 when passenger traffic was at similar levels to what is expected in 2010.

Cargo demand is expected to grow by seven per cent to 37.7 million tonnes in 2010 (stronger than the previously forecast five per cent in September), following a 13 per cent decline in 2009. Total freight volumes will remain 10 per cent below the 41.8 million tonne peak recorded in 2007.

"Cargo demand is rising faster than world trade as depleted inventories are rebuilt. Once the inventory cycle completes, growth is expected to fall back in line with world trade" said the Geneva based organisation that represents the world's major airlines.

In 2009, passenger and cargo yields plummeted by 12 per cent and 15 per cent respectively. Cargo yields are expected to improve by 0.9 per cent in 2010. But passenger yields are not expected to improve from their extraordinary low level. This is being driven by two factors: excess capacity in the market and reduced corporate travel budgets.

Passenger traffic is expected to grow 4.5 per cent in 2010 (stronger than the previously forecast 3.2 per cent in September). A total of 2.28 billion people are expected to fly in 2010, bringing total passenger numbers back in line with the peak recorded in 2007.

Capacity adjustments in 2009 were made at the expense of lower aircraft utilisation (down six per cent). An additional 1,300 aircraft due for delivery in 2010 will contribute to 2.8 per cent global capacity growth, putting continuing pressure on yields.

Fuel: An average oil price of $75 per barrel (Brent) is expected in 2010, up considerably from the $61.8 average expected for 2009. As a percentage of operating costs, fuel will be 26 per cent in 2010. This is considerably lower than the 32 per cent of operating costs that fuel comprised in 2008, but twice the 13 per cent of operating costs that fuel represented in 2001-2002.

IATA said North American carriers will see losses reduced from $2.9 billion in 2009 to US$2 billion in 2010. "The improvement is largely the result of pricing power and cost reductions gained through capacity adjustments," it said.

European carriers will suffer the biggest losses of any region at $2.5 billion. This is an improvement over the $3.5 billion loss that the region's carriers are expected to post in 2009. Slow economic recovery in the region combined with limited ability to adjust capacity due to airport slot regulations is hindering the region's airlines.

Asia-Pacific carriers will post losses of $700 million. Compared to losses of $3.4 billion in 2009, this region is showing the most dramatic improvement. This is driven by a recovery in some of the region's economies. For example, China's GDP is forecast to grow by nine per cent in 2010.

Latin American carriers will be the only profitable regional grouping in both 2009 and 2010. The profit in each year is expected to be $100 million. This is largely due to the benefit of relatively strong economies in South America and the efficiencies gained through regional airline structures.

Middle East carriers will see losses shrink from a $1.2 billion loss in 2009 to a $300 million deficit in 2010. A strong long-haul connection business over Middle East hubs will provide some insulation against the impacts of Dubai's financial difficulties.

African carriers will deliver a loss of $100 million in 2010-consistent with the $100 million loss of 2009. Relatively strong economies and increasingly liberal markets are being offset by competitiveness challenges.

Source: www.schednet.com