Losses in Airline Industry Less Than Expected

A report from the International Air Transport Association said the airline industry is expected to have collective losses of $2.5 billion in 2009. The loss would be half what the group’s 230 members expected to lose this year and reflected improving operations in North America, where a sharp fall in fuel prices has brought relief to airlines that did not hedge against the costs.

Airlines in North America are expected to shift from huge losses to a modest profit next year, the trade group said on Tuesday, but carriers in Europe and Asia will have deeper losses. Unlike airlines elsewhere, several American carriers were only just emerging from bankruptcy protection as oil prices were rising last year, leaving them unable to hedge and protect themselves against the surge in fuel costs. When oil prices fell sharply, their lack of contracts locked in at high prices turned out to be a boon.

While oil, which peaked at $145.29 a barrel in July, is likely to average $60 a barrel in 2009, according to the trade industry’s forecasts, overall revenue in the industry will fall by $35 billion, to $501 billion.

“The chronic industry crisis will continue into 2009 with $2.5 billion in losses,” said Giovanni Bisignani, the chief executive of the association, based in Geneva. Describing the economic  environment as the worst in 50 years, he said, “The outlook is bleak.”

Oil has now fallen to around $43 a barrel, but not soon enough to prevent American carriers from posting what the trade group predicts will be $3.9 billion in losses this year — the worst regional performance in the industry.

Next year, North American airlines should claw out a $300 million profit, but the margin will be less than 1 percent, the report said. Global passenger traffic is expected to fall faster than it did after the Sept. 11, 2001, terrorist attacks. Traffic grew 2 percent in 2008, but was expected to fall 3 percent in 2009, the group said. In 2001, it fell 2.7 percent.

Air cargo traffic is an early indicator of trends in economic growth because companies stop flying inventory when a slowdown bites. The group predicted that the falloff in cargo traffic would accelerate, dropping 5 percent in 2009 after an expected 1.5 percent decline this year. In a sign that the slowdown was worsening, cargo traffic shrank 7.9 percent in October.

In Europe, where many carriers are still locked in at higher fuel-hedging levels and the biggest economies are already in a recession, aviation industry losses will be 10 times as high, or $1 billion, in 2009, the group said.

Losses for airlines in the Asia-Pacific region will more than double, to $1.1 billion, next year, group said. The area has a disproportionate 45 percent of the air cargo market. But Chinese exports are expected to slow, Japan is in a recession, and India is likely to have a drop in demand.

Among the fast-expanding Middle Eastern airlines, losses will double, to $200 million. African carriers already battling to retain market share can expect another year of losses, estimated at $300 million.

“The industry remains sick,” Mr. Bisignani said, adding that “the ferocity of the economic crisis” had overshadowed the industry’s efforts to rein in costs. “It will take changes beyond the control of airlines to navigate back into profitable territory,” he added.