Global air transport industry forecasts $2.5-billion loss this year

The international air transport industry is forecast to suffer a $2.5-billion loss this year based on a fuel price of $60 per barrel, a decline of three percent in passenger volumes, a drop of five percent in cargo traffic and yield deterioration of three percent.

Global airlines registered a $5-billion loss in 2008. Industry revenues are expected to contract by $35 billion, dropping to $536 billion in 2008 and further to $501 billion in 2009.

“2009 is shaping up to be one of the toughest years ever for international aviation. The 22.6-percent drop in international cargo traffic in December puts us in un-charted territory and the bottom is nowhere in sight. Keep your seatbelts fastened and prepare for a bumpy ride and a hard landing,” International Air Transport Association (IATA) president and CEO Giovanni Bisignani noted.

IATA represents some 230 of the world’s biggest airlines, including those from the Philippines, comprising 93 percent of scheduled international air traffic.

International passenger traffic in 2008 increased by a modest 1.6 percent compared with the previous year, but cargo traffic was not spared from the slowdown in world trade as it dropped four percent.

According to IATA, in December alone, global international cargo traffic plummeted 22.6 percent from a year ago. The same comparison for international passenger traffic showed a 4.6 percent drop. The international load factor stood at 73.8 percent.

For the full-year 2008, the international load factor stood at 75.9 percent.

“The 22.6-percent free fall in global cargo is unprecedented and shocking. There is no clearer description of the slowdown in world trade. Even in September 2001, when much of the global fleet was grounded, the decline was only 13.9 percent,” Bisignani said.

 Air cargo carries 35 percent of the value of goods traded internationally.

Bolstered by year-end advance-booked leisure travel, the 4.6 percent decline in December passenger demand was less dramatic than the fall in cargo. A 1.5 percent cutback in supply could not keep pace with falling demand, resulting in a 2.4 percent decline in the December load factor to 73.8 percent.

“Airlines are struggling to match capacity with fast-falling demand. Until this comes into balance, even the sharp fall in fuel prices cannot save the industry from drowning in red ink. Yields are also under attack with a sharp drop in November premium traffic,” Bisignani added. For November, IATA reported an 11.5-percent drop in the number of premium tickets issued globally.

Passenger traffic showed a 1.6 percent increase in demand in 2008 which is dramatically down from the 7.4 percent recorded in 2007. Capacity grew by 3.5 percent resulting in a full-year average load factor of 75.9 percent (down from the 77.3 percent recorded for 2007)

Asia-Pacific carriers saw the sharpest decline in December international traffic at 9.7 percent. They also registered the sharpest reduction in capacity, but at 5.6 percent, this is lagging behind the drop in demand.

Load factors in the region sank to 72.6 percent. According to IATA, the economic turmoil in the region is widespread as December export volumes fell 20 percent for Singapore and 35 percent for Japan. Korea’s gross domestic product (GDP) showed a 5.5 percent contraction. While China’s economy continues to grow, recently released GDP figures show that it is at a much slower pace. As a result, traffic in the region continues to be the hardest hit.

Meanwhile, European carriers saw demand for international travel fall 2.7 percent while capacity declined 1.5 percent. Load factors stood at the global average of 73.8 percent. With business confidence indicators pointing to a 10 percent decline in industrial production and a 20 percent fall in trade, there is little reason for optimism, IATA said.

North American airlines reported a 4.3 percent drop in demand in December, far outstripping the 0.7 percent cut in international capacity. While North American carriers had made early cuts in domestic capacity of about 10 percent, this is the first month registering a cut in international operations. Nonetheless, the region recorded the highest load factor at 78.1 percent.

IATA also reported that full year international air freight traffic contracted four percent for the year compared to 4.3 percent growth in 2007.

According to IATA, the collapse in the airline industry’s freight business is a reflection of the 20 to 30 percent declines in export and import volumes being reported across Asia, North America and Europe as the global recession plumbs new depths in December.

Asia-Pacific carriers, accounting for 45 percent of international cargo, led the December decline with a 26 percent contraction compared to the previous year. Latin American carriers saw cargo drop 23.7 percent; North American carriers 22.2 percent and European carriers 21.2 percent. Single-digit declines were recorded by Middle Eastern carriers (9.2 percent) and African carriers (eight percent)

In the face of this economic crisis, IATA is calling for major structural changes to the industry. “We don’t want bailouts. But we need to change the ownership rules. Almost every other business has the freedom to access to global capital and the ability to merge across borders where it makes sense. To manage in this crisis, airlines need the same management tools,” Bisignani pointed out.–Mary Ann Ll. Reyes, Philippine Star