IATA: 2010 losses to be worse than expected
The International Air Transport Association said this week it has revised its estimate of how much the airline industry will lose in 2010.
IATA said it now projects a $5.6 billion loss in 2010, compared to previous projections of $3.8 billion. Airlines will lose $11 billion in 2009. The increased losses are primarily due to an expected rise in fuel costs, despite a moderate recovery in volumes.
'For 2010, some key statistics are moving in the right direction,' said Giovanni Bisignani, IATA's director general and chief executive officer. 'Demand will likely continue to improve and airlines are expected to drive down non-fuel unit costs by 1.3 percent. But fuel costs are rising and yields are a continuing disaster. Airlines will remain firmly in the red in 2010.'
IATA projects revenues will actually expand 4.9 percent in 2010 to $478 billion, though that's still well below the peak of $535 billion in 2008.
'Cargo demand is expected to grow by 7 percent to 37.7 million tons in 2010 (stronger than the previously forecast 5 percent in September), following a 13 percent decline in 2009,' IATA said. 'Total freight volumes will remain 10 percent below the 41.8 million ton peak recorded in 2007. Cargo demand is rising faster than world trade as depleted inventories are rebuilt. Once the inventory cycle completes, growth is expected to fall back in line with world trade. In 2009, cargo yield plummeted by 15 percent. Cargo yields are expected to improve by 0.9 percent in 2010.'
IATA is forecasting that fuel will represent 26 percent operating costs in 2010. That's lower than the 32 percent of operating costs that fuel comprised in 2008, but twice the 13 percent of operating costs that fuel represented in 2001-2002.
'The industry is structurally out of balance,' Bisignani said. 'The precipitous fall in yields will likely never be fully recovered. It is difficult to see how this can be balanced on the cost side of the equation. After almost a decade of cost cutting, non-fuel unit cost reductions will be incremental at best. And the risk of rising fuel costs will be constant. There will be some individual airline success stories. But without relaying the foundations of the industry to facilitate structural change, covering the cost of capital for this hyper-fragmented industry will remain a dream at best.'
He said consolidation is the only answer.
'Consolidation is the great hope for the industry,' Bisignani said. 'The round of consolidation experienced since this horrible decade began is a step in the right direction. But it has been confined within political borders as a result of ownership restrictions in the archaic bilateral system. The industry cannot afford the mounting losses of the status quo. The next decade must facilitate consolidation.'