Global airline revenue crunch worse than after 9/11

Wednesday 25th March 2009

The global airline industry's revenue may tumble by 12%, or US$62 billion this year, surpassing the decline following the 9/11 terror attacks in 2001, as the global economy deteriorates.

The International Air Transport Association forecasts the industry will have combined losses of US$4.7 billion in 2009, almost twice the amount the body was predicting in December. It warned of "extreme pressure" on airline balance sheets as companies carry a debt burden of U$$170 billion. The estimated losses for 2008 were revised up to US$8.5 billion from US$5 billion after a difficult fourth quarter.

"The state of the airline industry today is grim," said Giovanni Bisignani, IATA's director general. "Demand has deteriorated much more rapidly with the economic slowdown than could have been anticipated even a few months ago."

Air New Zealand's monthly statistics show passenger numbers drooped 9.5% in February, with the biggest slide in long-haul routes to North America, the UK and Asia. The airline, which posted a 79% drop in first-half profit, imposed a freeze on executive pay, reduced servicers and is eliminating jobs in response to a downturn in demand. Rival Qantas Airways last month had its credit rating cut for the first time in more than a decade by Moody's Investors Service, which lowered the rating to Baa2 citing the industry downturn.

IATA said passenger traffic may shrink by 5.7% this year, driven by a drop-off in premium price travel. Cargo demand may sink by 13%. In December, the body was forecasting declines of 3% and 5% respectively. Yields may fall by 4.3%, it said.

Losses for the industry would be worse if not for a decline in prices of jet fuel, which may reduce the fuel bill to 25% of operating costs this year from 32% in 2008, IATA said. Total spending on fuel may fall to US$116 billion from US$168 billion last year, it predicted.

Still, "the relief of lower fuel prices is overshadowed by falling demand and plummeting revenues," Bisignani. "The industry is in intensive care. Airlines face two immediate fundamental challenges: conserving cash and carefully matching capacity to demand," he said.

Carriers in the Asia-Pacific region will continue to be hardest hit, with combined losses in the region forecast at US$1.7 billion, reflecting shrinking economic activity in major economies such as Japan, where GDP may contract 5.5% in 2009.

International demand to and from China is expected to contract by between 5% and 10% over the year, IATA said. India's capacity may increase by 0.7% in 2009, while demand drops between 2% and 3%. Overall, the region is expected to see a 6.8% fall in demand but only a 4.0% drop in capacity, it said.

IATA represents some 230 airlines comprising 93% of scheduled international air traffic.

By Jonathan Underhill

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