Scheduled airline loss forecast halved – but massive regional differences remain
Wednesday, 12 Mar, 2010
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A much stronger recovery in demand for air travel has led IATA to halve its loss forecast for 2010 to $2.8 billion.
This compares with a collective industry loss of $5.6 billion predicted three months ago.
Revenues will rise to $522 billion – $44 billion more than previously forecast and a $43 billion improvement on 2009.
IATA also lowered its 2009 loss estimate to $9.4 billion from the previously forecast $11 billion.
Improvements are driven by economic recovery in the emerging markets of Asia-Pacific and Latin America whose carriers posted international passenger demand gains of 6.5% and 11.0% respectively in January.
North America and Europe are lagging with international passenger demand gains of 2.1% and 3.1% respectively for the same month.
Director general and CEO Giovanni Bisignani said: “We are seeing a definite two-speed industry.
“Asia and Latin America are driving the recovery. The weakest international markets are North Atlantic and intra-Europe which have continuously contracted since mid-2008.”
Passenger demand, which fell by 2.9% last year, is expected to grow by 5.6% in 2010. This is an improvement on the previous forecast in December of 4.5% growth.
Premium travel, while slower to recover than economy, now appears to be following a cyclical recovery in volume terms, according to IATA.
But it is still 17% below the early 2008 peak. Premium yields, which are 20% below peak, may be suffering a “structural shift”.
“Revenues are half-way to recovery—$42 billion below the 2008 peak and $43 billion above the 2009 trough, said Bisignani.
“Important fundamentals are moving in the right direction. Demand is improving.
“The industry has been wise in managing capacity. Prices are beginning to align with the costs – premium travel aside.
“We can be optimistic but with due caution. Important risks remain. Oil is a wild-card, over-capacity is still a danger, and costs must be kept under control—throughout the value chain and with labour.”
He added: “The stark contrast between profitability among Asian and Latin American carriers while losses continue to plague the rest of the industry clearly demonstrates the fact that airlines have not been able to develop into global businesses.
“The restrictions of the bilateral system prevent the kind of cross border consolidation that we have seen in industries such as pharmaceuticals or telecoms.
“Airlines are battling the challenges of the financial crisis without the benefit of this important tool. It’s time for change,” said Bisignani.
Regional differences:
European carriers will post a $2.2 billion loss—the largest among the regions. This reflects the slow pace of economic recovery and faltering consumer confidence. Demand is expected to grow by 4.2% in 2010. Intra-European premium travel is expected to recover more slowly. In December it remained 9.7% below previous year levels.
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North American carriers will post the second largest losses at $1.8 billion. The jobless economic recovery continues to burden consumer confidence. Demand is expected to improve by 6.2% in 2010. But with intra-North America premium travel still down 13.3% as of December, the region remains in the red.
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· Asia-Pacific carriers will see the $2.7 billion 2009 loss turn to $900 million in profits on the back of a rapid economic recovery being driven by China. Cargo markets are particularly strong with long-haul cargo capacity for shipments originating in Asia experiencing a capacity shortage. Demand is expected to grow by 12% in 2010.
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Latin American carriers will post an $800 million profit for the second consecutive year. The region’s economies are less debt-burdened than the US or Europe. Economic ties to Asia helped isolate the region from the worst of the financial crisis. Carriers in parts of the region have benefitted from liberalized markets which have facilitated some cross-border consolidation, giving greater flexibility to deal with changing economic conditions. Demand is expected to grow by 12.2% in 2010.
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Middle East carriers are expected to experience demand growth of 15.2% in 2010, but will see losses of $400 million. Low yields in long-haul markets connected over Middle East hubs is a burden on profitability.
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African carriers are likely to post a $100 million loss for 2010, halving 2009 losses. Demand is expected to improve by 7.4%. But this will not be sufficient for profitability as they continue to face strong competition for market share.
by Phil Davies
Phil Davies
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