2009 Business Travel Survey: IATA Sees Billions In Losses Last Year, This Year

When International Air Transport Association director general and CEO Giovanni Bisignani gave a global airline industry forecast in April, the outlook was nothing but grim. "Air transport is in a crisis," he said, after which he detailed the litany of woes facing the business: billions of losses in 2008, battered premium traffic, freefalling revenues and an estimated $4.7 billion in losses this year.

Though Bisignani noted a significant year-over-year drop in fuel cost will reduce the industry's global 2009 fuel bill by more than $50 billion, "Industry revenues will fall faster," he said. IATA estimates a 12 percent decline in annual revenues for global airlines this year, a $62 billion hit.

"This is not a transatlantic issue, not a U.S.-U.K issue, this is a genuine global downturn," British Airways CEO Willie Walsh told investors in New York last month.

Of particular concern to global airlines is the freefall in premium traffic and revenue. Though first and business class tickets represent only 8 percent of all tickets sold, IATA noted, they contribute 25 percent of revenue. "This is where airlines make money," Bisignani said. For the first three months of the year, IATA said premium revenue on a worldwide basis fell between 35 percent and 40 percent.

U.S. carriers are better prepared to meet ongoing demand declines, Bisignani said, as they have been at the forefront of capacity reductions. Carriers in other regions of the world have less adequately matched capacity to the deteriorating demand environment, IATA reported.

In traffic figures released late last month, IATA said overall international traffic in April declined only 3.1 percent, although that modest decline is at the expense of reduced fares and is skewed by the Easter holiday shift to April in 2009 from March in 2008.

"We are not out of the woods yet," Bisignani said. "The demand improvements that we saw in April are welcome, but the 3.1 percent decline in passenger demand still outstripped the 2.5 percent cutback in capacity. There is no improvement in revenues as yields continue to fall, and freight remains at shockingly low levels. The worst may be over. However, we have not yet seen any signs that recovery is imminent."

IATA reported Asia/Pacific carriers continue to experience the "most significant demand deterioration," with an 8.6 percent decline in April traffic, but an even tougher hit on premium travel. IATA noted Asia/Pacific carriers' premium traffic declined "29.3 percent across the Pacific, 29.2 percent with the region and a fall of 20.1 percent between Europe and the Far East."

Meanwhile, Asia/Pacific carriers added 2 percent to regional capacity, while international capacity fell by 2 percent.

European carriers witnessed an 11.6 percent decline in passenger demand in March 2009, but figures improved by declining only 2.7 percent in April, IATA reported, "closely matching the capacity adjustment."

OAG reported capacity within Europe was down nearly 7 percent compared with April 2008, while international capacity to and from Europe declined by 1.7 percent. Bisignani in March noted, "Europe's carriers continue to suffer from fuel hedges put in place last year. Even as the effect of these wears off, with recessions in Europe, Japan and the U.S., demand falls will result in a $1 billion loss" for the full year 2009.

Bisignani estimated the Middle East to be the only region to maintain growth this year, but in March he said carriers in the region would lose money this year as "the 1.2 percent increase in demand will not keep up with the 3.8 percent increase in capacity."

Latin American carriers are expected to lose $600 million this year, as are carriers in Africa. "Given the relatively small size of the industry in these regions, these are big losses," Bisignani said. •