Airlines to lose $5.2 billion in 2008
The International Air Transport Association (IATA) expects the global airline industry to lose $5.2 billion this year, based on an average crude oil price of $113 per barrel ($140 for jet fuel).
“The situation remains bleak. The toxic combination of high oil prices and falling demand continues to poison the industry’s profitability,” said Giovanni Bisignani, IATA’s director general and CEO.
“While there has been some relief in the oil price in recent months, the year-to-date average is $113 per barrel. That’s $40 per barrel more than the $73 per barrel average for 2007, pushing the industry fuel bill up by $50 billion to an expected $186 billion this year,” said Bisignani. Fuel is expected to rise to 36 per cent of operating costs, up from 13 per cent in 2002.
IATA also announced industry traffic data for July which showed a continued slowing of demand.
July’s year-on-year passenger demand growth fell to 1.9 per cent - the lowest in five years. Capacity increased by double that to 3.8 per cent, indicating that service cuts are not keeping pace with the fall in demand.
The surprise of July was a 0.5 per cent drop in passenger demand by Asia-Pacific carriers partly attributable to a change in Chinese visa requirements but also showing that economic weakness is spreading to previously robust economies.
As a result of the weaker economic outlook IATA significantly revised downward its traffic forecast for domestic and international markets combined. Passenger traffic is now expected to grow on average by 3.2 per cent (was 3.9 per cent) and air freight volumes by just 1.8 per cent (was 3.9 per cent).
“While some regions will show small profits, the negative impact of the industry crisis is universal,” said Bisignani. Middle Eastern profits will drop by $100 million to $200 million.
North American carriers are expected to post losses of $5.0 billion in 2008 making them the hardest hit by this industry crisis. Asia Pacific is expected to see profits shrink from $900 million in 2007 to $300 million this year.
European profits will tumble seven fold from $2.1 billion in 2007 to $300 million in 2008.
Latin American and African carriers will see losses deepen to $300 million and $700 million respectively.
IATA also announced that for 2009 the difficult business environment is expected to continue. Most economies are expected to deliver even weaker economic growth next year, which will negatively impact air travel and freight.
“While we expect the bottom line to improve by about $1 billion next year, the industry will be $4.1 billon in the red,” said Bisignani. “This crisis is re-shaping the industry in more severe ways than the demand shocks of SARS or 9.11. When fuel goes from 13 per cent of your costs to 40 per cent in seven years with an increased cost implication of $183 billion, you simply cannot continue to do business in the same way. Fundamental change is needed,” said Bisignani.
“This crisis is highlighting the need for greater commercial freedom. Airlines are facing enormous challenges. To be successful and continue providing jobs to 32 million people and supporting $3.5 trillion in economic activity, airlines must be able to do business like any other business,” said Bisignani.