04 September 2008

IATA: Airlines to lose US$5.2 billion in 2008

MONTREAL - The International Air Transport Association (IATA) has forecast that the global airline industry will lose of US$5.2 billion in 2008 based on an average crude oil price of US$113 per barrel (US$140 for jet fuel).

ââ¬ÅâœThe situation remains bleak. The toxic combination of high oil prices and falling demand continues to poison the industryââ¬â¢s profitability,ââ¬~ said Giovanni Bisignani, IATAââ¬â¢s director general and CEO.
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"While there has been some relief in the oil price in recent months, the year-to-date average is US$113 per barrel.

ââ¬ÅâœThat's US$40 per barrel more than the US$73 per barrel average for 2007, pushing the industry fuel bill up by US$50 billion to an expected US$186 billion this year," said Bisignani.

Fuel is expected to rise to 36% of operating costs, up from 13% in 2002.
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IATA also announced industry traffic data for July which showed a continued slowing of demand.

July year-on-year passenger demand growth fell to 1.9% - the lowest in five years. Capacity increased by double that - 3.8% - indicating that service cuts are not keeping pace with the fall in demand.

This pushed the load factor for the month to 79.9%, a drop of more than 1% compared to July 2007.

The surprise of July was a 0.5% drop in passenger demand by Asia-Pacific carriers partly attributable to a change in Chinese visa requirements but also showing that economic weakness is spreading to previously robust economies.
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IATA said the difficult business environment is expected to continue.
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"While we expect the bottom line to improve by about US$1 billion next year, the industry will be US$4.1 billon in the red,ââ¬~ said Bisignani.

ââ¬ÅâœThis crisis is re-shaping the industry in more severe ways than the demand shocks of SARS or 9-11.

"When fuel goes from 13% of your costs to 40% in seven years with an increased cost implication of US$183 billion, you simply cannot continue to do business in the same way. Fundamental change is needed,ââ¬~ said Bisignani.

"While some regions will show small profits, the negative impact of the industry crisis is universal,ââ¬~ said Bisignani.

North American carriers are expected to post losses of US$5billion in 2008 making them the hardest hit by this industry crisis.

Asia Pacific is expected to see profits shrink from US$900 million in 2007 to US$300 million this year.

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