World’s Air Transport Industry Braces for Brutal 2009

 - December 10, 2008, 8:47 AM

The International Air Transport Association (IATA) predicts “the worst revenue environment in 50 years” in the airline business next year, according to a global market forecast the group released yesterday. In all, IATA sees a loss of $2.5 billion, led by a doubling in losses among Asia-Pacific carriers to $1.1 billion. Europe will rival Asia-Pacific’s bruising with a tenfold rise in losses, to $1 billion, according to the IATA report.

IATA’s bleak outlook for the Asia-Pacific market comes just as China’s Civil Aviation Administration released guidelines this week that advise its airlines to cancel or delay delivery of aircraft scheduled for delivery next year. Reacting to a sharp drop in airline traffic following the summer Olympics in Beijing, the CAA also urged its carriers to ground and sell airplanes, allow leases to expire and accelerate cargo conversions of older airplanes.

Already controlling 45 percent of the global cargo market, however, Asia-Pacific cargo operators will feel a disproportionate effect of IATA’s projected 5-percent global decline next year. IATA cited the recession in the region’s largest cargo market–Japan–and “a major shift in performance” of its two growth markets–China and India–in its bleak outlook for the region. Chinese growth will slow, it said, as a result of the drop-off in exports. Finally, India’s carriers, already struggling with high taxes and insufficient infrastructure, can expect a drop in demand following the terrorist attacks in Mumbai last month.

Meanwhile, in the Middle East, airlines will see losses double to $200 million, as the region responds to the challenge of expanding fleets and slowing traffic, particularly for long-haul connections. IATA also expects Latin American carriers to see losses double to $200 million. The economic crisis, particularly the recession in the U.S., has severely curtailed the strong commodity demand that has driven the region’s recent growth, said IATA. Finally, the association expects African airlines will lose $300 million, as the region’s carriers struggle to defend market share.
Remarkably, IATA expects North American carriers to post a small profit of $300 million next year, after suffering the hardest hit of any region this year by the summer surge in fuel prices. Although very limited hedging by the region’s carriers will result in a loss of $3.9 billion this year, according to IATA, the sudden fall in fuel prices will benefit North America most for the same reason. The association also credited North American carriers for an early 10-percent cut in domestic capacity in response to the fuel crisis, giving the region’s carriers a head-start in combating the recession-led fall in demand.

All told, however, IATA sees a global fall in revenue from $536 billion to $501 billion, a 3-percent decline in yields (5.3 percent when adjusted for exchange rates and inflation) and a 3-percent decline in passenger traffic. 

IATA director general and CEO Giovanni Bisignani outlined an industry action plan for 2009 that reflects the association’s Istanbul Declaration in June. “Labor must understand that jobs will disappear when costs don’t come down,” he said. “Industry partners must contribute to efficiency gains. And governments must stop crazy taxation, fix the infrastructure, give airlines normal commercial freedoms and effectively regulate monopoly suppliers.”