Bisignani: Crisis for airlines worse than 9/11

Bisignani: Crisis for airlines worse than 9/11    The International Air Transport Association said Wednesday its projected losses for the airline industry in 2009 have become larger since a projection made in June.
   IATA now projects an $11 billion loss, $2 billion worse than previously forecast. The association said rising fuel prices and 'exceptionally weak yields' are responsible for the steeper losses. Revenue for the year is expected to drop 15 percent to $455 billion.
   Worse yet, IATA now estimates the airline industry lost $16.8 billion in 2008, not the $10.4 billion it initially calculated.
   'This revision reflects restatements and clarification of the accounting treatment of very large revaluations to goodwill and fuel hedges,' said IATA, which stripped out such extraordinary items that are not realized in cash terms to come to revised figures.
   'The bottom line of this crisis — with combined 2008-2009 losses at $27.8 billion — is larger than the impact of 9/11,' with the industry losing $24.3 billion in 2001-2002, said Giovanni Bisignani, IATA's director general and chief executive officer. 'This is not a short-term shock. Eighty billion (dollars) will disappear from the industry's top line. That 15 percent of lost revenue will take years to recover. Conserving cash, careful capacity management and cutting costs are the keys to survival. The global economic storm may be abating, but airlines have not yet found safe harbor. The crisis continues.'

Bisignani

   IATA blamed weak demand for passenger traffic and cargo and falling yields for the worsened projections.
   'Cargo utilization remains at less than 50 percent despite the removal of 227 freighters from the global fleet,' IATA said. 'There is little hope for an early recovery in yields in either the passenger or cargo markets.'
   And the uptick in fuel prices is now canceling the lone bright spot for airlines in the first half of 2009. Oil prices, at a projected $61 per barrel for the year on average, are higher than thought in the June forecast ($56 per barrel), an issue that will add $9 billion in costs for the industry.
   'The optimism in the global economy has seen passenger and freight volumes rise, but that is the only bright spot,' Bisignani said. 'Rising costs and falling yields have squeezed airline cash flows. The sharp decline in yields will leave a lasting mark on the industry's structure. And revenues are not likely to return to 2008 levels until 2012 at the earliest. With cash flows substantially down over the first half of the year, the situation is critical. Larger carriers have built-up cash reserves of $15 billion — a war chest that is warding off a major cash crisis. But the outlook for small and medium-sized carriers — with limited options to raise cash — is much more severe.'
   For 2010, IATA expects losses to continue with the industry expected to report a $3.8 billion net loss.
   'This is based on a limited revival of growth in traffic volumes of 3.2 percent for passenger and 5 percent for cargo, very little increase in yields of 1.1 percent for passenger and 0.9 percent for cargo and oil at $72 per barrel,' IATA said.