IATA doubles 2009 loss forecast

IATA doubles 2009 loss forecast    The International Air Transport Association said Wednesday it expects a 13 percent drop in cargo volumes in 2009.
   The projection came as IATA updated forecasts for the year from its last financial forecast in December. The drop in cargo volumes, along with a predicted 5.7 percent drop in passenger traffic, would contribute to a 12 percent drop, or $63 billion, in revenue for airlines for the year.
   IATA said reduced fuel costs and lower operating costs from capacity cuts will allow industry-wide losses to be lowered from $8.5 billion in 2008 to $4.7 billion in 2009. But that predicted loss is nearly double the $2.5 billion loss forecast in December.
   The final quarter of 2008 was particularly hard on the industry, as demand fell and capacity couldn’t be withdrawn fast enough. Another issue exacerbating the bad numbers that airlines hedged fuel early in 2008 while oil prices skyrocketed. When fuel prices dropped in the fourth quarter, airlines were left with higher prices than the spot rate while demand shrunk considerably.
   “Since our previous forecast in December economic conditions took a further dramatic turn for the worse,” said IATA chief economist Brian Pearce. “Companies were left with excessive inventories and so abruptly cut shipments; freight was down by a quarter by the end of the year as a result.”
   Pearce did say U.S. airlines are in for a much better year in 2009 thanks to their ability to cut capacity in line with demand.
   “Airlines in the U.S. are the only region to have been able to shrink capacity in line with the fall in demand, and are forecast to turn large 2008 losses into a small 2009 profit,” he said. “However, we expect that airlines in all other regions will find that the deep recession causes significant net losses.”
   While IATA said there are signs the air cargo industry is nearing its floor in the current economic crisis, 2009 is not expected to produce the turnaround.
   “The shrinkage of air freight by almost a quarter has never been experienced before in post-war years typified by expanding globalization and reducing trade barriers,” Pearce said. “Partly this reflects the depth of the recession and extreme weakness in business demand for capital goods and lack of consumer demand for electronics and other high value/low weight products normally shipped by air. However, there was also a huge stock overhang that developed at the end of last year that caused manufacturers and retailers to reduce inventories and so abruptly cut shipments of components and products by air. Freight slumped as a result.'
   A recovery is 'dependent on renewed economic growth so 2010 looks earliest for recovery and (there will likely be a) delay until 2011 for strong rebound,” he added.