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:
- Industry net losses are forecast to remain high at $9 billion during 2009, which is twice as big as the $4.7 billion loss forecast in March. This change reflects two key developments over the last few months. First, there have been growing signs of a bottoming out of the recession. But second it has become apparent that the airline industry was suffering more than expected during the first quarter; in particular yields and revenues slumped very sharply.
- Recovery, particularly for passenger markets, faces severe headwinds from consumer indebtedness and high business inventories, pointing to revenue weakness persisting well into 2010. Airline losses have already been worse than expected in the first quarter with results from 60 airlines totaling to losses of over $3 billion, which is a significant deterioration from last year. Oil prices have also started to rise, as markets anticipate economic recovery, squeezing airline cash flows.
- Capacity is being resized in response to the slump in demand, particularly on US domestic markets but also on major long-haul route areas across the Atlantic and the Pacific. However, in other regions such as Asia and the Middle East capacity continues to grow. As a result, with the exception of US domestic markets, load factors have fallen very sharply and growing excess capacity is causing fares and cargo rates to decline at a rapid pace.
- The good news is that major airlines have stronger cash balances – by around 5% of revenues – than before the 2001 downturn and new cash has been raised this year; more than $4 billion on capital market and $4 billion on aircraft sales and leaseback transactions so far. The problem is that many mid-size and small airlines have less of a cash cushion. The longer the recovery is delayed the greater is the risk posed by the drain on cash.