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The International Air Transport Association, or IATA, issued a revised global financial forecast that sees deeper than the previously projected losses in 2009 owing to rising fuel costs and falling yields. In a separate statement, IATA called on the Obama Administration to renew its role as a leader in the global aviation industry and take immediate action to boost the US economy and to make the global system safer and more secure.
IATA's latest forecast predicts airline losses totaling US$11 billion in 2009, up from its previous forecast of US$9 billion. Industry revenues for the year are expected to fall by 15% or about US$80 billion from last year to US$455 billion.
Passenger traffic is now expected to decline by 4.0% and cargo by 14% for 2009, compared to its earlier forecasts for declines of 8.0% and 17%, respectively. Yields are expected to fall 12% for passenger and 15% for cargo, in comparison with its June forecasts of declines of 7% and 11%, respectively.
IATA noted that the fall in passenger yield is led by the 20% drop in demand for premium travel. Cargo utilization remains at less than 50% despite the removal of 227 freighters from the global fleet. According to the organization, there is little hope for an early recovery in yields in either the passenger or cargo markets.
The increase in oil prices is expected to affect the bottom-line as spot oil prices have been driven up sharply in anticipation of improved economic conditions. Oil is now expected to average US$61 per barrel for the year, up from the US$56 per barrel price it estimated in June, which will add US$9 billion in cost for a total expected fuel bill of US$115 billion.
North American carriers are expected to post losses of US$2.6 billion, much higher than its previous loss forecast of US$1.0 billion. Although early resizing of capacity matched the slump in demand, yields remain weak and recovery in travel demand is being held back by high levels of debt and unemployment, IATA noted.
European carriers are expected to post the largest losses of US$3.8 billion, compared to the previously forecast US$1.8 billion loss, as key long-haul markets were hit by the world trade collapse and delays in relaxing slot regulations prevented a timely reduction in capacity.
Asia-Pacific carriers will post losses of US$3.6 billion, similar to the US$3.3 billion previously forecast. IATA noted that the region's carriers, which were the worst hit by the recession and fuel hedging losses at the end of 2008, are the first to benefit from reviving Asian economic growth and the modest restocking of inventories in the West.
According to the IATA forecast, Latin American carriers are expected to break even, an improvement from the previously forecast loss of US$0.9 billion, as airlines in this region are benefiting from more robust economies and less of the consumer debt headwind seen in North America.
Middle East carriers will also see an improved outlook, IATA noted. In this region, airlines continue to gain long-haul market share with expanded capacity and hub connectivity. The weakness of economic recovery, however, could mean continued excess capacity and further losses, IATA added.
The outlook for Africa's carriers is unchanged with an expected loss of US$0.5 billion. In spite of many economies on the continent continuing to grow during the global recession, African airlines were not able to benefit and lost market share with further losses expected in this region next year.
IATA also revised its loss estimates for 2008 to a loss of US$16.8 billion from a loss of US$10.4 billion to reflect restatements and clarification of the accounting treatment of revaluations to goodwill and fuel hedges. IATA industry profit figures strip-out extra-ordinary items not realized in cash terms.
According to Giovanni Bisignani, IATA's Director General and CEO, "The bottom line of this crisis - with combined 2008-9 losses at US$27.8 billion - is larger than the impact of 9/11. Industry losses for 2001-2002 were US$24.3 billion...That 15% of lost revenue will take years to recover. Conserving cash, careful capacity management and cutting costs are the keys to survival. The global economic storm may be abating, but airlines have not yet found safe harbor. The crisis continues."
Looking ahead, IATA expects losses to continue into 2010 with the industry expected to report a US$3.8 billion net loss. This projection is based on a limited revival of growth in traffic volumes of 3.2% for passenger and 5% for cargo; very little increase in yields of 1.1% for passenger and 0.9% for cargo and oil at US$72 per barrel.
Bisignani also urged all stakeholders in the industry to cut costs and improve efficiency to weather the crisis. ''All our business partners - including airports, air navigation service providers, global distribution systems - must be prepared to cut costs and improve efficiencies. Some airports have delivered cost reductions, but not in line with the magnitude of the changes to the industry cash flow," he added.
The IATA CEO exhorted governments to create a policy framework that supports a competitive air transport sector capable of driving economic expansion. He blamed that European governments are fixated on using environment as an excuse to squeeze more taxes out of the industry, while the U.S. is not moving fast enough to deliver the critical advantages to competitiveness that NextGen air traffic management will bring.
Pointing out that the industry does not need bailouts, Bisignani said governments should look more seriously at this sector ''by investing in efficient infrastructure, replacing the proliferation of environmental taxes with a global solution for the environment and giving airlines normal commercial freedoms to merge where it makes sense and to access markets and global capital like any other business.''.
Meanwhile, in a speech to the International Aviation Club of Washington, Bisignani outlined a prescription to help the US aviation industry recover from the crisis worse than the period following 9/11. IATA called for greater cooperation between the US and International Civil Aviation Organization to break down silos and share safety information and data. It also said the U.S. should stop duplicate and conflicting data collection efforts by coordinating across the various departments of the U.S. Department of Homeland Security.
Bisignani also urged the Obama Administration to work together with the industry to reach the industry's goal of carbon neutral growth from 2020. Dwelling on commercial freedoms, he said tightening restrictions on alliances and antitrust immunity are protectionist. In cargo security, Bisignani feels the 100% deadline for screening set for next year is at risk as the government has not yet certified the required tools to meet the objective. "President Obama has a full agenda, but aviation policy must also be among his White House priorities. Putting NextGen on a fast track would provide tremendous stimulus to this country including 77,000 new jobs," he said.
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