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Airlines set for $5bn loss this year
A bleak picture has been painted for the airline industry with losses of $5 billion this year and $2.5 billion in 2009. All regions, except the US, are expected to report larger losses in 2009 than this year, according to IATA. Losses for European carriers will increase ten-fold to $1 billion as 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, according to the industry body. Industry-wide revenues are expected to decline to $501 billion, a fall of $35 billion from the $536 billion in forecast for 2008. The slump is the first since the two consecutive years of decline in 2001 and 2002.

IATA updated its forecast for 2008 to a loss of $5 billion, a slight improvement from the $5.2 billion loss projected in September, primarily as a result of the rapid decline in fuel prices. Passenger traffic in 2009 is expected to decline by 3% following growth of 2% in 2008, giving the first drop since the 2.7% slowdown in 2001. The 2009 oil price is expected to average $60 per barrel for a total bill of $142 billion - $32 billion lower than this year when oil averaged $100 per barrel. IATA director general Giovanni Bisignani said: “The outlook is bleak. The chronic industry crisis will continue into 2009 with $2.5 billion in losses. We face the worst revenue environment in 50 years.”

The reduction in industry losses from 2008 to 2009 is primarily due to a shift in the results of North American carriers. Airlines in the region were hardest hit by high fuel prices with very limited hedging and are expected to post the largest industry losses for 2008 at $3.9 billion.

An early 10% domestic capacity reduction in response to the fuel crisis has given US carriers a head-start in combating the recession-led fall in demand.

The lack of hedging is now allowing the region’s carriers to take full advantage of rapidly declining spot fuel prices. As a result, North American carriers are expected to post a small profit of $300 million in 2009.

“North America will be the only region in the black, but the expected $300 million profit is less than 1% of their revenue. 2009 will be another tough year for everyone,” said Bisignani. All other regions will show losses, IATA warned. Bisignani said the ferocity of the economic crisis has overshadowed any gains made and airlines are struggling to match capacity with the expected 3% drop in passenger demand for 2009. “The industry remains sick. And it will take changes beyond the control of airlines to navigate back into profitable territory,” he added. Vicky Karantzavelou - Wednesday, December 10, 2008