Airline Industry Loss Estimate Jumps Almost 90% to $4.7 Billion
Share | Email | Print | A A A
By Andrea Rothman
March 24 (Bloomberg) -- Global airline losses may total $4.7 billion this year, almost 90 percent higher than previously forecast, as the deepening recession wipes out $63 billion of revenue, the International Air Transport Association said.
Passenger traffic is likely to drop 5.7 percent and cargo traffic by 13 percent, Geneva-based IATA said in a statement today. The association had predicted an industry-wide loss of about $2.5 billion for the year as recently as Dec. 9.
Airlines are shedding jobs, cutting routes and grounding planes to survive a slowdown that’s pushed previously profitable operators such as British Airways Plc and Cathay Pacific Airways Ltd. to losses. IATA says industry capacity may shrink 6 percent as carriers seek to better match seating to ticket sales.
“The state of the airline industry today is grim,” IATA Director General Giovanni Bisignani said on a conference call. “Demand has deteriorated much more rapidly with the economic slowdown than could have been anticipated even a few months ago. Combined with an industry debt of US$170 billion, the pressure on the industry balance sheet is extreme.”
IATA based its revised estimates on a projected 1.9 percent contraction in global gross domestic product as the economy suffers the deepest recession since the 1930s. The December forecast was based a projected 0.9 percent drop.
Carriers in North America have been the only ones to reduce capacity fast enough to keep pace with the drop in demand, and this should allow them to turn a loss of about $5 billion last year into a profit of about $100 million, IATA said. All other regions will report losses, led by deficits of $1.7 billion in the Asia-Pacific and $1 billion in Europe.
2008 Losses Higher
Losses in the fourth quarter of last year reached more than $4 billion, compared with the $1 billion estimated, even as oil prices halved from third-quarter levels, IATA said. While the steeper-than-expected deterioration in the economy was one factor, airlines were also tied into fuel hedging position which meant they couldn’t fully benefit from cheaper crude. Kerosene prices are generally fell less than the overall oil price.
IATA’s figures exclude non-cash items such as a $6.9 billion goodwill write-off from the merger of Delta Air Lines Inc. and Northwest Airlines Corp. If these are included, the U.S. industry’s loss last year was about $21 billion, it said.
Including hedging instruments that were ‘marked to market’ because they’d have produced a cash loss if exercised, the industry loss for last year jumps from an estimated $8.5 billion to as much as $17 billion. The figures are likely to be revised further as more carrier report numbers, IATA said.
“Airlines are facing an unprecedented global crisis due to a deepening global recession,” the trade body said in its statement. “The sharp drop in passenger and cargo demand is reshaping the industry, with drastic change from capacity cuts, to consolidation talks and cost-reduction measures.” |
