Airline industry losses this year are expected to be nearly double the level forecast in December, as carriers are hit by steeply falling demand from premium passengers and by record falls in cargo traffic.
Giovanni Bisignani, director general of IATA, the airline industry trade association said on Tuesday: "The state of the airline industry today is grim. Demand has deteriorated much more rapidly with the economic slowdown than could have been anticipated even a few months ago."
Relief from lower fuel prices had been 'overshadowed' by falling demand and plummeting revenues, he said. "The industry is in intensive care."
Net losses are forecast to reach $4.7bn this year, up from the $2.5bn forecast in December, as global economic conditions rapidly deteriorate.
IATA also revised its estimate for airline industry net losses for last year from $5bn to $8.5bn, as carriers were hit by the sudden and sharp fall in demand from lucrative premium passengers, where most network carriers generate the bulk of their profits, and from cargo.
Premium passenger numbers fell by almost 17 per cent in January year-on-year, while cargo traffic fell by 23 per cent.
Airline passenger traffic volumes are forecast to fall this year by 5.7 per cent with cargo demand dropping by 13 per cent, as the aviation sector suffers a much bigger slump than forecast as recently as December.
Airlines are facing one of the biggest ever annual falls in revenues in 2009 with a drop of $62bn or 12 per cent to $467bn. By comparison, industry revenues fell by only 7 per cent in the two years after the September 11 terrorist attacks in the US.
Mr Bisignani said the industry's continuing deep losses combined with the airlines' total debt of $170bn meant that the pressure on their balance sheets was "extreme."
Consumers are benefiting from the plunge in demand for air travel, as airlines are forced to cut fares in order to try to stimulate traffic and to bring in cash. Iata said yields or average fare levels were expected to fall by 4.3 per cent this year.
The industry is shrinking in response to the slump in demand with capacity forecast to fall by 6 per cent this year, but actions to cut flights and ground aircraft are still not keeping pace with the fall in demand.
IATA said airlines in the US were the only region to have been able to shrink capacity in line with the fall in demand, and they were forecast to turn large 2008 losses into a small 2009 profit. However, airlines in all other regions would find the deep recession causing significant net losses, with Asia Pacific carriers the hardest hit with forecast net losses of $1.7bn.
Mr Bisignani said weak consumer and business confidence was expected to keep spending and demand for air transport low.
"The prospects for airlines are dependent on economic recovery. There is little to indicate an early end to the downturn. It will be a grim 2009. And while prospects may improve towards the end of the year, expecting a significant recovery in 2010 would require more optimism than realism," he said.
As airlines are forced by the recession to defer and even cancel orders for new aircraft, the makers of commercial jets, Airbus and Boeing, would suffer a sharp drop in production, said Iata, with deliveries set to fall by around 30 per cent by 2011.
Copyright The Financial Times Limited 2009
