Worldwide improvement is concentrated in Asia, Latin America

Brands, not flags, must guide the industry to profitability, says Iata head

Geneva, Switzerland (GenevaLunch) – The airline industry is expected to have an overall loss of $9.4 billion for 2009, according to Iata, the Geneva-based air transport industry organization, which released new figures Thursday 11 March. The loss is lower than Iata’s December projected figure of $11b. “More significantly, we now forecast smaller losses in 2010 of $2.8b, compared to our previous forecast of $5.6b.”

The improvement is due to year-end growth in traffic that carried on into January, but it was much led by Asia and Latin America, with the US and Europe far more sluggish.

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“We can be optimistic but with due caution,” Giovanni Bisignani, CEO and director-general says. “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 labour.”

Asian and Latin American carriers posted international passenger demand gains of 6.5 percent and 11.0 percent respectively in January. North America and Europe lagged, with international passenger demand gains of 2.1 and 3.1 percent.

Iata is optimistic for the year, noting in a press release that “revenues are half-way to recovery – $42b below the 2008 peak and $43b above the 2009 trough. Important fundamentals are moving in the right direction.” Revenues are expected to rise to $522b in 2010, $44b more than previously forecast.

Iata represents 230 airlines throughout the world.

2010 looks brighter, but oil price could keep costs up

Projections for 2010 have been shifted upwards:

• passenger traffic will grow 5.6 percent and cargo 12%
• yields for airlines are slowly improving, up 2 percent for passenger and 3 percent for cargo in 2010
• premium travel is starting to improve, although more slowly than economy, and it remains 17 percent below its peak in 2008
• on a more negative note, fuel cost estimates are also going up, and fuel is expected to be 26 percent of 2010 costs, up from 24 percent in 2009.

Ista, which has long battled for fewer bilateral agreements and more open skies, argues that the large gaps in profitability in 2009 and 2010 underscore the airline industry’s inability to create truly international companies. A Novembr 2009 Iata initiative led to several countries, including Switzerland and the US as well as the European Commission, signing a statement of policy principles to liberalize market access, pricing and ownership for airlines.

“The second stage talks between the US and Europe are the big opportunity for 2010,” says Bignani. “The slow recovery in both regions should be an invitation for change. Liberalizing ownership would boost both markets. Even more importantly, as these markets combined represent about 60 percent 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.”

Iata’s figures show the following regional differences:

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 percent in 2010.

Latin American carriers will post an $800 million profit for the second consecutive year. The region’s economies are less debt-burdened than the US or Europe. Economic ties to Asia helped isolate the region from the worst of the financial crisis. Carriers in parts of the region have benefited from liberalized markets which have facilitated some cross-border consolidation, giving greater flexibility to deal with changing economic conditions. Demand is expected to grow by 12.2 percent in 2010.

European carriers will post a $2.2 billion loss, the largest among the regions. This reflects the slow pace of economic recovery and faltering consumer confidence. Demand is expected to grow by 4.2 percent in 2010. Intra-European premium travel is expected to recover more slowly. In December it remained 9.7 percent below previous year levels.

North American carriers will post the second largest losses at $1.8 billion. The jobless economic recovery continues to burden consumer confidence. Demand is expected to improve by 6.2 percent in 2010. But with intra-North America premium travel still down 13.3 percent as of December, the region remains in the red.

Middle East carriers are expected to experience demand growth of 15.2 percent 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.

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