Fuel, Demand Woes Flay Carriers' Finances

The International Air Transport Association this month said the global airline industry is poised to lose $5.2 billion this year amid high fuel costs and softening demand.

Though the price of oil has steadily trended downward for much of August and into September—even dipping below $100 per barrel—average prices remain well above those recorded in 2007, as year-to-date oil prices pulled in early September are "$40 per barrel more than the $73 per barrel average for 2007," said IATA director general and CEO Giovanni Bisignani.

That increase, along with estimates for the remainder of the year, would yield a total industry fuel burden of $186 billion for 2008, he said, an increase of $50 billion over 2007.

"The situation remains bleak," said Bisignani. "The toxic combination of high oil prices and falling demand continues to poison the industry's profitability."

IATA said passenger demand growth for July—the most recent month on record—fell to its lowest level in five years at less than 2 percent globally.

Leading the industry in its struggles, carriers based in North America are expected to contribute most of the industry's losses for this year.

North American carriers are on target to lose $5 billion in 2008—"making them the hardest hit by this industry crisis," the association said.

The bad news has spread to other regions. Though carriers in Asia/Pacific are expected to post a profit, forecasts are lowering the expectations to $300 million from last year's $900 million. European carriers also are expected to post an aggregate profit, but smaller margins place that in the $300 million range in 2008, compared with $2.1 billion in 2007.

IATA expects the grim picture to continue throughout 2009, as the association's first forecast for next year points to losses of $4.1 billion. Though IATA expects a 2009 average cost per barrel of oil to be $110—modestly lower than 2008's full-year estimate—it expects 2009 fuel expenses to grow "as hedging offers less protection," the association said.