Every quarter IATA updates its forecast for the airline industry’s financial performance over the year ahead. The focus of these financial forecasts is on the drivers of profitability, both cyclical and structural, with a view to highlighting the change required for long-term financial sustainability.
The latest forecast shows:
- Airline industry losses in excess of $2.7 billion during the first half of the year confirm our early-September financial forecast of $5.2 billion full year net losses.
- Since the forecast was made oil and jet fuel prices have fallen significantly further than expected, as the extraordinary financial crisis raised the risk of recession later this year and into 2009. However, fuel hedging will delay the benefits of lower spot fuel prices, while economic weakness is fast reducing airline traffic and revenues. The net impact may leave our forecast of $5.2 billion net losses this year unchanged.
- The outlook for 2009 is far more uncertain. Recession in a number of major economies and travel markets now looks a distinct possibility, whereas at the time this forecast was made we were expecting a slowdown, not recession. The industry is highly geared to the economic cycle and has always suffered substantial losses in previous economic downturns. As a result, and despite fuel costs now likely to be much lower than expected at the time of this forecast, our forecast for further losses amounting to $4.1 billion in 2009 still looks a plausible outcome.
- The wild card in this outlook is capacity. Following the fuel price spike in July airlines responded rapidly by cutting capacity plans and now the schedules point to a global cut in scheduled capacity of 1-2% in the first part of next year. This still may be insufficient to offset the impacts of a recession but, if the economic downturn is not as severe as some expect, financial performance next year may not be as bad as forecast. Fundamental problems of poor profitability remain nonetheless. Mergers and capacity reductions are planned but only a more liberal regulatory regime allowing more rational restructuring of capacity could ease the severe pressures facing the industry.