By Steven Rothwell March 11 (Bloomberg) — Airlines worldwide will lose a collective $2.8 billion in 2010, half the previous forecast, as emerging markets lead a rebound in traffic, the International Air Transport Association said. The loss estimate was cut from $5.6 billion after a “much stronger recovery in demand” at the end of 2009 that continued into the first months of this year, the Geneva, Switzerland- based association said in a statement today. Losses last year probably amounted to $9.4 billion rather than the $11 billion previously estimated, IATA said. Traffic will increase about 5.6 percent in 2010, with the recovery in western markets lagging behind growth in emerging economies. “We are seeing a definite two-speed industry,” IATA Chief Executive Officer Giovanni Bisignani said on a conference call. “Asia and Latin America are driving the recovery. The weakest international markets are the North Atlantic and intra-Europe, which have continuously contracted since mid-2008.” Earnings are picking up after the industry reined in capacity, allowing airlines to lift average fares and boost revenue as demand increases, Bisignani said. Yields — a measure of ticket prices — should gain 2 percent this year following a 14 percent decline in 2009, he said. Investor Optimism Investors in the U.S. industry, which includes Delta Air Lines Inc. and AMR Corp.’s American Airlines , the world’s largest carriers, are betting that the worst is past. The Bloomberg U.S. Airlines Index rose 18 percent this year through yesterday, compared with gains of 7.1 percent and 1 percent for gauges of Asia-Pacific and European carriers. By region, European carriers probably will suffer the biggest loss, at $2.2 billion, followed by North American airlines at $1.8 billion on concern that job losses will be a drag on consumer spending, IATA said. Asia-Pacific carriers are projected to post a $900 million profit as China drives growth, reversing a $2.7 billion loss in 2009. Latin American operators may earn $800 million, matching last year’s performance, according to the trade group. IATA said airlines’ cuts in seating capacity helped them fly fuller planes, with the average load factor on international flights reaching 75.9 percent in January. Revenue Shortfall Global industry revenue is likely to be $552 billion this year, $43 billion more than in 2009, Bisignani said. That’s still $42 billion less than the peak in 2008. “We can be optimistic, but with due caution,” he said. “Important risks remain. Oil is a wild-card, over-capacity is still a danger, and costs must be kept under control throughout the value chain and with labor.” IATA raised its forecast for the average price of oil this year to $79 a barrel from $75 and now estimates fuel will make up 26 percent of operating costs, versus 24 percent in 2009. There remains a danger that crude prices will outpace economic growth, making it tough for airlines to pass the cost to passengers in the form of surcharges, Bisignani said. A surge in fuel prices two years ago began a crisis that deepened as demand for travel tumbled in the credit crisis and global recession, resulting in the collapse of 34 airlines since 2008. The industry has lost $50 billion in the past 10 years, with last year’s drop in passenger demand the worst since World War II, IATA said on Jan. 27. The slump pushed carriers including British Airways Plc and Singapore Airlines Ltd. into losses and forced Japan Airlines Corp. to file for bankruptcy. Cargo demand is expected to increase 12 percent worldwide, IATA said, better than the 7 percent previously forecast. Asian air-freight markets are particularly strong, with shipments originating there experiencing a capacity shortage. Lufthansa Outlook Deutsche Lufthansa AG, Europe’s second-biggest airline, said today that operating profit should increase this year following a 112 million-euro ($153 million) net loss in 2009. “No one can say how long it will take for us to make up for the current losses,” CEO Wolfgang Mayrhuber said in a statement. “A solid balance sheet, efficient capacity adjustments and the reduction of costs are, and will remain, the decisive factors for success.” Like European rival British Airways, the German carrier faces a possible strike as it seeks to restrain costs. With the rebound fragile, walkouts would likely hurt earnings, IATA said. “It’s certainly not the time for strikes,” Bisignani said. “The recovery will depend on everybody sharing the burden. We are moving in the right direction, but let’s remember the situation is still in the red.” To contact the reporter on this story: Steven Rothwell in London at srothwell@bloomberg.net
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Airline-Loss Estimate Cut 50% to $2.8 Billion as Industry Sees Travel Gain
