IATA Forecasts Huge Losses for 2008

THE International Air Transport Association (IATA), announced a revised industry financial forecast that would see the global airline industry post losses of US$5.2 billion in 2008, 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. We expect losses of $5.2 billion this year,” said Giovanni Bisignani, IATA’s director general and chief executive officer. 
Fuel: “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.

Demand: IATA also announced industry traffic data for July, which showed a continued slowing of demand.
Cargo demand in July contracted by 1.9 per cent, compared to 2007. Asia Pacific carriers – the largest players in the cargo market – were hit hard with a 6.5 per cent drop in demand.
As a result of the weaker economic outlook IATA significantly revised downward its traffic forecast for domestic and international markets combined. Airfreight volumes are expected to grow 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.
IATA announced its initial outlook 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. With an expected oil price of $110 per barrel ($136 for jet fuel) and continued weak growth, industry losses are expected to continue at $4.1 billion. The 2009 fuel bill is expected to rise, as hedging offers less protection, to $223 billion comprising 40 per cent of operating expenses.
“While we expect the bottom line to improve by about $1 billion next year, the industry will be $4.1 billion in the red. The 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.
“Airlines have reduced non-fuel unit costs by 18 per cent since 2001. Airports and air navigation service providers must join the effort. Efficiency gains are critical but cannot fully absorb the impact of skyrocketing fuel prices.
“The 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.
“More airlines have gone bust in 2008 in the aftermath of 9/11. To cure the structural sickness of the industry, made all the more obvious by the high price of oil, we need a strong dose of liberalisation. The US-EU talks later this month, are one opportunity to address ownership restrictions in an important market. And IATA is taking the unusual step of facilitating a global dialogue on an Agenda for Freedom next month in Istanbul . Simply weathering the current storm is not an option. We must take the opportunity of these extraordinary times to facilitate extraordinary change to strengthen the industry with normal commercial freedoms,” said Bisignani.

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