IATA Sees European Airlines Taking Deeper Losses Than Others This Year
European airlines are on track to post $3.8 billion in losses this year, surpassing losses sustained by carriers in any other region, the International Air Transport Association said in its latest financial forecast this week.
IATA's forecast more than doubles the previous outlook on European airline financial performance it released in June, when the association projected carriers in the region to lose $1.8 billion this year.
"Key long-haul markets were hit by the world trade collapse and delays in relaxing slot regulations prevented a timely reduction in capacity," IATA said.
Globally, airlines are on pace to lose $11 billion in 2009 amid declining passenger numbers, decimated yields and fuel costs that are creeping back upward, IATA said. Its updated projection plunges the industry $2 billion deeper in the red than it previously forecast.
IATA director general and CEO Giovanni Bisignani in a call with reporters this week said, "We are in intensive care, and the crisis for us is not over."
Though IATA noted some improvement in passenger volumes as the year wore on—from a low of negative 11 percent in March—the airline association projected that overall passenger traffic this year would decline 4 percent. However, deeply discounted fares and depressed premium demand put airline yields on pace to fall 12 percent. As such, airline revenue is expected to fall 15 percent, or $80 billion, IATA projected.
"Even with better volume, we don't see industry revenue returning to 2008 levels until 2012 or 2013 at the earliest," Bisignani said. He noted that the industry, after its last major crisis following Sept. 11, 2001, "took roughly three-and-a-half years to recover those revenues," he said, "and let's remember that Sept. 11 was not a global crisis, it was a shock."
Weathering the storm, Bisignani said, comes down to airlines' ability to cut costs, improve efficiencies, cut capacity and preserve cash.
"Larger airlines have built up cash reserves of $15 billion in the past 10 months," Bisignani said. Of that, he said, $12 billion is in debt and $3 billion is in equity. "This is similar to a war chest to fight the crisis." Still, Bisignani said, "some airlines have not been able to build up their reserves. They've relied on banks and banks are not lending," adding, that means "we could see some more casualties in the coming months."
Bisignani was quick to note that the cost of fuel, though lower than it was a year ago, "is rising, and this could come back to bite us," stressing the importance for airlines to make strategic investments, chief among them more fuel-efficient aircraft. In the forecast, IATA projects oil to average $61 per barrel this year, up from the expected $56 per barrel in its June outlook.
North American carriers are on pace to lose $2.6 billion, while Asia-Pacific airlines are expected to lose $3.6 billion and Middle Eastern airlines are a half-billion dollars in the red. Latin American carriers, meanwhile, are expected to break even this year.