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Airline-Loss Estimate Cut 50% to $2.8 Billion as Industry Sees Travel Gain

by on March 11, 2010

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

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Airline Loss Forecast for 2010 Widens to $5.6 Billion on Fuel, IATA Says

by on December 15, 2009

Bloomberg:

By Andrea Rothman Dec. 15 (Bloomberg) — Airline losses in 2010 will total $5.6 billion, 47 percent wider than an earlier forecast, as oil prices rise while carriers compete for passengers with lower fares, the International Air Transport Association said. Projected losses for 2010 are about half the $11 billion deficit that IATA predicts for this year. Passenger demand, after a decline of 4.1 percent in 2009, may grow by 4.5 percent in 2010 as the industry rebounds from the recession, IATA General Director Giovanni Bisignani said today in Geneva. “Fuel costs are rising and yields are a continuing disaster,” Bisignani said. Yields, or average fares, fell 12 percent in 2009 and will remain at depressed levels, he said. The group had forecast in September that the industrywide loss in 2010 would be $3.8 billion. IATA said today that global revenue will rise by 4.9 percent to $478 billion in 2010, below the peak of $535 billion in 2008. “The worst is likely behind us,” Bisignani said. “For 2010, some key statistics are moving in the right direction.” Airline non-fuel costs, for example, may decline by 1.3 percent in the coming year, he said. IATA, which represents 230 airlines carrying 93 percent of international traffic, estimated that jet fuel will represent 26 percent of operating costs in 2010, twice the share in 2001- 2002. IATA predicts that Brent crude oil will average $75 a barrel in 2010, up from an average of $61 this year. Traffic Decline Even as economies begin to emerge from a recession that began in late 2008 in the U.S., the benefits of higher growth rates may be slow to trickle through to airlines, which are eliminating jobs and shrinking capacity in response to a drop in first- and business-class traffic. “Cheap travel is getting even cheaper,” Brian Pearce , IATA’s chief economist, said at the briefing in Geneva. While average fares may recover somewhat in stronger markets including Asia, he said, the weakest markets for fares will include Europe and the North Atlantic, he said. “In those markets you’re likely to see even more downward pressure on yields,” he said. Air France-KLM Group , Europe’s biggest airline, has a target of cutting its workforce by 6.1 percent in the two years through March 2010 and aims for a further reduction of as much as 5 percent in the following year. British Airways Plc faces a strike during this month’s Christmas-New Year holiday, usually one of the industry’s most profitable periods, amid a dispute over working conditions. European Loss For 2010, European airlines will generate the largest losses of any region at $2.5 billion, IATA said. That’s an improvement of $1 billion from the loss forecast for this year. North American carriers may cut losses to $2 billion from $2.9 billion. Asia-Pacific carriers are forecast to lose $700 million, improving from $3.4 billion in 2009. Middle East carriers may have losses shrink to $300 million from $1.2 billion in 2009, and African carriers will lose about $100 million, unchanged from 2009. The only region whose carriers will earn money is Latin America, which may see profits in 2010, as in 2009, of about $100 million, IATA said. Airline performance began to improve in the third quarter, after worsening in the first half of the year, IATA said. “A move out of recession and to stronger economic growth, particularly in emerging markets, boosted first air freight, and then air travel,” the group said. IATA said that cargo yields, down 15 percent in 2009, should rise 0.9 percent this year. IATA’s projections are based on information from its members, which don’t include some of the more profitable discount airlines such as Dallas-based Southwest Airlines Inc. , Ryanair Holdings Plc and EasyJet Plc in Europe, and Kuala Lumpur-based AirAsia Bhd. To contact the reporter on this story: Andrea Rothman in Geneva via aerothman@bloomberg.net .

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Airline Loss Forecast for 2010 Widens to $5.6 Billion on Fuel, IATA Says

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Airline Loss Forecast for 2010 Widens to $5.6 Billion on Fuel, IATA Says

December 15, 2009

By Andrea Rothman Dec. 15 (Bloomberg) — Airline losses in 2010 will total $5.6 billion, 47 percent wider than an earlier forecast, as oil prices rise while carriers compete for passengers with lower fares, the International Air Transport Association said. Projected losses for 2010 are about half the $11 billion deficit that IATA predicts for this year. Passenger demand, after a decline of 4.1 percent in 2009, may grow by 4.5 percent in 2010 as the industry rebounds from the recession, IATA General Director Giovanni Bisignani said today in Geneva. “Fuel costs are rising and yields are a continuing disaster,” Bisignani said. Yields, or average fares, fell 12 percent in 2009 and will remain at depressed levels, he said. The group had forecast in September that the industrywide loss in 2010 would be $3.8 billion. IATA said today that global revenue will rise by 4.9 percent to $478 billion in 2010, below the peak of $535 billion in 2008. “The worst is likely behind us,” Bisignani said. “For 2010, some key statistics are moving in the right direction.” Airline non-fuel costs, for example, may decline by 1.3 percent in the coming year, he said. IATA, which represents 230 airlines carrying 93 percent of international traffic, estimated that jet fuel will represent 26 percent of operating costs in 2010, twice the share in 2001- 2002. IATA predicts that Brent crude oil will average $75 a barrel in 2010, up from an average of $61 this year. Traffic Decline Even as economies begin to emerge from a recession that began in late 2008 in the U.S., the benefits of higher growth rates may be slow to trickle through to airlines, which are eliminating jobs and shrinking capacity in response to a drop in first- and business-class traffic. “Cheap travel is getting even cheaper,” Brian Pearce , IATA’s chief economist, said at the briefing in Geneva. While average fares may recover somewhat in stronger markets including Asia, he said, the weakest markets for fares will include Europe and the North Atlantic, he said. “In those markets you’re likely to see even more downward pressure on yields,” he said. Air France-KLM Group , Europe’s biggest airline, has a target of cutting its workforce by 6.1 percent in the two years through March 2010 and aims for a further reduction of as much as 5 percent in the following year. British Airways Plc faces a strike during this month’s Christmas-New Year holiday, usually one of the industry’s most profitable periods, amid a dispute over working conditions. European Loss For 2010, European airlines will generate the largest losses of any region at $2.5 billion, IATA said. That’s an improvement of $1 billion from the loss forecast for this year. North American carriers may cut losses to $2 billion from $2.9 billion. Asia-Pacific carriers are forecast to lose $700 million, improving from $3.4 billion in 2009. Middle East carriers may have losses shrink to $300 million from $1.2 billion in 2009, and African carriers will lose about $100 million, unchanged from 2009. The only region whose carriers will earn money is Latin America, which may see profits in 2010, as in 2009, of about $100 million, IATA said. Airline performance began to improve in the third quarter, after worsening in the first half of the year, IATA said. “A move out of recession and to stronger economic growth, particularly in emerging markets, boosted first air freight, and then air travel,” the group said. IATA said that cargo yields, down 15 percent in 2009, should rise 0.9 percent this year. IATA’s projections are based on information from its members, which don’t include some of the more profitable discount airlines such as Dallas-based Southwest Airlines Inc. , Ryanair Holdings Plc and EasyJet Plc in Europe, and Kuala Lumpur-based AirAsia Bhd. To contact the reporter on this story: Andrea Rothman in Geneva via aerothman@bloomberg.net .

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