Current crisis 'worse than 9/11' as IATA boosts loss forecast to $11 billion

Declaring that the situation facing the world's airlines "has never been more difficult," IATA DG and CEO Giovanni Bisignani said yesterday in Washington that the airline industry now is expected to lose $11 billion this year, a deterioration from the association's forecast of a $9 billion loss issued at its AGM in early June.

Key factors driving the downward revision are rising fuel prices and "exceptionally weak yields," which will cause revenues to decline by 15% or $80 billion this year to $455 billion. "The scale of this crisis is bigger than 9/11," Bisignani told the International Aviation Club, noting that airline losses for the 2001-02 period totaled $24.3 billion versus an estimated $27.8 billion for 2008-09. Results for the current period reflect a downward revision in the 2008 loss to $16.8 billion from $9 billion (ATWOnline, June 8).

Earlier in the day, Bisignani briefed media on the industry outlook for 2009-10. While noting that the industry will spend $50 billion less on fuel this year, he said passenger yields are expected to fall 12% and cargo yields 15%. Yields have fallen faster than at any time in IATA's 65-year history, he pointed out.

The downturn in premium passengers is particularly severe, with a 20% drop in travel demand this year versus a 5% decline for economy travel. "Airlines make money on the front part of the plane," he observed, warning that "after every crisis we never see yields return to their starting point." Even with higher traffic volume, IATA does not see a return to 2008 revenue levels until 2012-13. This likely will drive a major industry restructuring as airlines adjust to what may be a long-term fall in premium-cabin demand.

IATA expects North American carriers to lose $2.6 billion this year, widened from a prior forecast of $1 billion. Europe's airlines will shed $3.8 billion versus a forecast of $1.8 billion in June. Asia/Pacific carriers are expected to lose $3.6 billion ($3.3 billion). However, Middle East airlines are doing better than expected and their loss forecast was reduced to $0.5 billion from $1.5 billion. Latin American carriers will have a breakeven result ($0.9 billion previously) with African airlines losing $0.5 billion, unchanged from June's outlook.

Looking forward to 2010, IATA forecasts airlines will lose a further $3.8 billion, bringing the cumulative three-year loss to $31.6 billion. However, Asia/Pacific carriers are expected to post a small profit of $0.4 billion next year, with those in North America and Europe each losing $1.9 billion in aggregate.

Explaining the downward revision to 2008 results, IATA said it was necessary as more airlines reported annual results and to reflect revaluations of goodwill and fuel hedges.