The economy may be stabilizing for most businesses, but the airline industry expects a turn for the worse.
Global airlines expect to lose collectively $9 billion this year, almost twice as much as the forecast made merely three months ago, the International Air Transport Association (IATA) said on Monday.
Speaking at the group’s annual conference in Kuala Lumpur, IATA Director Giovanni Bisignani said that he expects airlines to lose $9 billion in 2009, due to “falling demand, collapsing yields, broken consumer confidence, and pandemic fears,” according to a speech provided by the IATA.
“There is no modern precedent for today’s economic meltdown,” Bisignani said.
While depressed crude prices have dampened losses at global airlines over the last several monthly, airlines fear that rising fuel prices in the immediate future coupled with low demand for travel will drive the industry toward steeper losses.
“Our customers don’t have confidence. They need to reduce debt and that means less cash to spend. Business habits are changing and corporate travel budgets have been slashed,” he continued.
Bisignani said that many businesses have turned to video conferencing instead of face-to-face meetings.
Cutting Service, Forming Partnerships
To stay afloat, the IATA said U.S. airlines moved quickly to cut excess capacity and trim unprofitable routes domestically. “Our U.S. colleagues cut quickly. As a result they are stronger,” Bisignani said.
The IATA also lauded airline partnerships and mergers, such as Delta Airlines’ acquisition of Northwest, and Air France-KLM’s alliance with Alitalia, which have created stronger entities with bigger reach and larger capital cushion.
Bisignani said that airlines must change their business to conform to new market realities.
“The same product in a different size is not the answer,” he told the conference. “Shippers and travelers will expect greater value at reduced prices. The entire value chain must be involved in resizing and reshaping this industry.”
He criticized certain airports and air navigation suppliers for their excess fees and unwillingness to share the burden, such as the British Airport Authority, which increased airline fees at London’s Heathrow International Airport by 86 percent, and the Delhi and Mumbai airports, which increased fees by over 200 percent.
Shares of China Eastern Airlines Corp. and Shanghai Airlines Co. were suspended from trading in Hong Kong on Monday. The companies are reportedly close to a merger deal.
Outlook Dim for U.S. Airlines
The IATA expects U.S. airlines to post $1 billion in losses for 2009, a figure that is smaller than its European and Asian rivals. The IATA said that the smaller loss amount projected for U.S. airlines is due to their aggressive cost and route cutting measures, something European airlines haven’t implemented fast enough.
UAL Corp., the parent of Chicago-based United Airlines, was recently downgraded by JPMorgan. Analysts were concerned over its cash strength amidst rising oil prices.
After the IATA announcement on Monday, airline stocks took a beating on Wall Street as the NYSE Arca Airline Index, which tracks stock performance of U.S. airlines, fell 3 percent.
Continental Airlines shares fell 8 percent to $9.82 and shares of AMR Corp., parent of American Airlines, dropped 7 percent to $4.69.
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