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Airlines see strong recovery, loss forecast cut

Geneva, March 11, 2010

Global airlines are expected to post a net loss of $2.8 billion  this year, half the previous forecast, following a stronger than expected recovery, the airline industry body Iata said on Thursday.

The new forecast compares with an expected loss of $9.4 billion for 2009, the International Air Transport Association said in an updated financial forecast.

In December IATA said the airline sector would lose $5.6 billion on a net basis in 2010, after losing $11 billion in 2009. 

Improvements are driven by economic recovery in the emerging markets of Asia-Pacific and Latin America whose carriers posted international passenger demand gains of 6.5 per cent and 11 per cent respectively in January, the forecast said.

North America and Europe are lagging with international passenger demand gains of 2.1 per cent and 3.1 per cent respectively for the same month.

Middle East carriers are expected to experience demand growth of 15.2 per cent in 2010, but will see losses of $400 million. Low yields in long-haul markets connected over Middle East hubs is a burden on profitability, the forecast pointed out.

“We are seeing a definite two-speed industry. Asia and Latin America are driving the recovery. The weakest international markets are North Atlantic and intra-Europe which have continuously contracted since mid-2008,” said Giovanni Bisignani, Iata’s director general and CEO.

The forecast highlighted that passenger demand (which fell by 2.9 per cent in 2009) is expected to grow by 5.6 per cent in 2010. This is an improvement on the previous forecast in December of 4.5 per cent growth.

Cargo demand (which fell by 11.1 per cent in 2009) is expected to grow by 12.0 per cent in 2010. This is significantly better than the previously forecast 7.0 per cent growth.

A strong year-end recovery pushed load factors to record levels when adjusted for seasonality. By January the international passenger load factor was 75.9 per cent while cargo utilization was at 49.6 per cent.

The forecast also said that tighter supply and demand conditions are expected to see yields improve – 2 per cent for passenger and 3.1 per cent for cargo, a considerable improvement from the 14 per cent fall experienced by both in 2009.

Premium travel, while slower to recover than economy travel, now appears to be following a cyclical recovery in volume terms, the forecast said. But it is still 17 per cent below the early 2008 peak. Premium yields, which are 20 per cent below peak, may be suffering a structural shift.

Iata raised its expected average oil price to $79 per barrel from the previously forecast $75. That is an increase of $17 per barrel on the $62 average price for 2009.

The combined impact of increased capacity and a higher fuel price will add $19 billion to the industry fuel bill bringing it to an expected $132 billion in 2010. As a percentage of operating costs, this represents 26 per cent, up from 24 per cent in 2009.

The 2010 forecast said that revenues will rise to $522 billion. That is $44 billion more than previously forecast and a $43 billion improvement on 2009.

“Revenues are half-way to recovery—$42 billion below the 2008 peak and $43 billion above the 2009 trough,” said Bisignani.

“Important fundamentals are moving in the right direction. Demand is improving. The industry has been wise in managing capacity. Prices are beginning to align with the costs—premium travel aside.”

“We can be optimistic but with due caution. Important risks remain. Oil is a wild-card, over-capacity is still a danger, and costs must be kept under control—throughout the value chain and with labor,” he added.

Sharp regional differences in airlines prospects

Asia-Pacific carriers will see the $2.7 billion 2009 loss turn to $900 million in profits on the back of a rapid economic recovery being driven by China. Cargo markets are particularly strong with long-haul cargo capacity for shipments originating in Asia experiencing a capacity shortage. Demand is expected to grow by 12 per cent in 2010.

African carriers are likely to post a $100 million loss for 2010, halving 2009 losses. Demand is expected to improve by 7.4 per cent. But this will not be sufficient for profitability as they continue to face strong competition for market share.

“The second stage talks between the US and Europe are the big opportunity for 2010,” said Bisignani.

“The slow recovery in both regions should be an invitation for change. Liberalizing ownership would boost both markets,” he noted.

“Even more importantly, as these markets combined represent about 60 per cent of global aviation it would send a strong signal for global change. Brands, not flags, must guide the industry to sustainable profitability. That cannot happen until governments throw away the outdated restrictions of the bilateral system,” Bisignani concluded. – TradeArabia News Service




Tags: Iata | Passengers | Geneva | fuel | Giovanni Bisignani | 2010 forecast | Cargo demand |

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