IATA cuts 2010 forecast, now expects $5.6 billion in industry losses

While asserting that the industry downturn has reached bottom with load factors returning to pre-recession levels and yields experiencing a timid recovery, IATA has become less positive about prospects for 2010 and yesterday deepened its forecast for global industry losses to $5.6 billion from $3.8 billion owing to renewed pressure on passenger yields, higher fuel prices and low aircraft utilization.

The organization maintained its forecast of an $11 billion net loss this year (ATWOnline, Sept. 16).

Latin American carriers will be the only profitable regional grouping in both 2009 and 2010, with net earnings of about $100 million each year. Airlines in more mature markets will post the highest losses as travel is reduced by high levels of consumer debt and unemployment. European carriers will generate some $2.5 billion in losses, down from $3.5 billion in 2010, and North American airlines will lose $2 billion next year compared to $2.9 billion this year. Asia/Pacific carriers will show the most dramatic improvement and scale down losses to $700 million from $3.4 billion in 2009. The Middle East will see losses shrink from $1.2 billion this year to $300 million in 2010.

"We are ending an Annus Horribilis that brings to a close the 10 challenging years of an aviation Decennis Horribilis. Between 2000 and 2009, airlines lost $49.1 billion, which is an average of $5 billion per year," DG and CEO Giovanni Bisignani told reporters at the IATA Global Press Day in Geneva. "The worst is likely behind us. However, challenges continue--2010 will look much like [the peak in] 2007, the same 2.3 billion passengers and oil at $75 is similar to the average of $73 in 2007."

He warned that after two years of "exceptional" low fare levels, consumers and corporate travel buyers will expect travel to remain cheap. In 2009, passenger yields plummeted 15% and IATA forecast no real improvement next year owing to excess capacity and reduced corporate travel budgets. An additional 1,300 aircraft due for delivery in 2010 will contribute to 2.8% global capacity growth. Capacity adjustments in 2009 were made at the expense of aircraft utilization, which fell 6%. Cargo yields are expected to improve 0.9% in 2010 after a 12% drop this year.

Collective revenue is expected to rise 4.9% to $478 billion in 2010, 11% below the 2008 peak of $535 billion and $30 billion below 2007, when passenger traffic was at similar levels to those expected next year. Passenger demand is expected to grow 4.5% in 2010, stronger than the 3.2% forecast in September and this year's 4.1% drop. Cargo demand is expected to rise 7% to 37.7 million tonnes, stronger than the previously forecast 5%, following a 13% decline in 2009. Total freight volume will remain 10% below the 41.8 million-tonne peak in 2007.

"The industry is structurally out of balance," Bisignani concluded. "The precipitous fall in yields will likely never be fully recovered. It is difficult to see how this can be balanced on the cost-side of the equation. After almost a decade of cost-cutting, nonfuel unit cost reductions will be incremental at best. . .But without relaying the foundations of the industry to facilitate structural change, covering the cost of capital for this hyper-fragmented industry will remain a dream."