IATA Cuts 2010 Loss Forecast In Half
Open Jaw

IATA halved its loss forecast for 2010 to US$2.8 billion (compared to the US$5.6 billion loss forecast in December 2009) largely due to a much stronger recovery in demand, particularly in Latin America and Asia.  Relatively flat capacity also translated into some yield improvement and stronger revenues.

‘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.

IATA also lowered its 2009 loss estimate to US$9.4 billion from the previously forecast US$11.0 billion loss.

Passenger demand (which fell by 2.9% in 2009) is expected to grow by 5.6% in 2010. This is an improvement on the previous forecast in December of 4.5% growth.  Cargo demand (which fell by 11.1% in 2009) is expected to grow by 12.0% in 2010. This is significantly better than the previously forecast 7.0% growth.

Airlines kept capacity relatively in line with demand throughout 2009. 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% while cargo utilization was at 49.6%.

After slashing capacity last year by cutting flights and using smaller aircraft, airfares and cargo rates are beginning to rise. IATA forecasts yield improvements of approximately 2% in 2010 for passenger travel and 3% for cargo, a considerable improvement from the 14% drop 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. But it is still 17% below the early 2008 peak. Premium yields, which are 20% below peak, seem to be suffering a structural shift.

With improved economic conditions, the price of fuel is rising. IATA raised its expected average oil price to US$79 per barrel from the previously forecast US$75. That is an increase of US$17 per barrel on the US$62 average price for 2009. The combined impact of increased capacity and a higher fuel price will add US$19 billion to the industry fuel bill bringing it to an expected US$132 billion in 2010. As a percentage of operating costs, this represents 26%, up from 24% in 2009.

Revenues will rise to US$522 billion. That is US$44 billion more than previously forecast and a US$43 billion improvement on 2009. ‘Revenues are half-way to recovery – US$42 billion below the 2008 peak and US$43 billion above the 2009 trough. 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,’ said Bisignani.

“The stark contrast between profitability among Asian and Latin American carriers while losses continue to plague the rest of the industry clearly demonstrates the fact that airlines have not been able to develop into global businesses. The restrictions of the bilateral system prevent the kind of cross border consolidation that we have seen in industries such as pharmaceuticals or telecoms. Airlines are battling the challenges of the financial crisis without the benefit of this important tool. It’s time for change,’ said Bisignani.

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