Article Posted on : - Mar 25, 2009

File photo of an Indian Airlines aircraft

MUMBAI (BNS): Deteriorating global economic conditions are having a severe impact on the airlines sector. Announcing a revised outlook, the International Air Transport Association (IATA) predicted losses of $4.7 billion in 2009. In December last year, the IATA had forecast a loss of $2.5 billion for this year, which has almost doubled.

IATA’s Director General and CEO Giovanni Bisignani said that the state of the airline industry was grim. “Demand has deteriorated much more rapidly with the economic slowdown than could have been anticipated even a few months ago. Our loss forecast for 2009 is now $4.7 billion. Combined with an industry debt of $170 billion, the pressure on the industry balance sheet is extreme,” Bisignani said.

The IATA said that during 2009, demand was projected to fall sharply with passenger traffic also expected to decline by 5.7 percent. Revenue implications of this fall will be exaggerated by an even sharper fall in premium traffic, it said. The international air body said that cargo demand was also expected to decline by 13.0 percent. In the December forecast, IATA had said that there would be a 3.0 percent drop in passenger demand and a 5.0 percent fall in cargo demand, while yields were expected to drop by 4.3 percent.

The IATA said that airlines in the Asia Pacific region continue to be hardest hit by the current economic turmoil and are expected to post losses of $1.7 billion.

Speaking about India, IATA said that from 2000 to 2008, the market for international air services had tripled in size. This year, it is expected to see capacity increase by 0.7 per cent, while demand drops between two and three per cent. “Overall, the region is expected to see a 6.8 percent fall in demand but only a 4.0 percent drop in capacity,” IATA said.

The director said that fuel was the only good news. “But relief of lower fuel prices is overshadowed by falling demand and plummeting revenues. The industry is in intensive care. Airlines face two immediate fundamental challenges: conserving cash and carefully matching capacity to demand,” Bisignani said.

In a statement released to the media, IATA said it revised its forecast losses for last year from $5.0 billion to $8.5 billion. The fourth quarter of 2008 was particularly difficult as carriers reported large hedging-related losses and a very sharp fall in premium travel and cargo traffic, IATA said.

Bisignani said that the prospects for airlines are dependant on economic recovery. “There is little to indicate an early end to the downturn. It will be a grim 2009. And while prospects may improve towards the end of the year, expecting a significant recovery in 2010 would require more optimism than realism,” he said.