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Airline losses to halve as fuel costs ease: IATA
Published in The Saudi Gazette on 10 - 12 - 2008

The airline industry losses in 2009 may shrink to half this year's level as a decline in fuel costs more than makes up for a reduction in the number of people flying.
Carriers may lose a total of $2.5 billion next year, compared with $5 billion in the current 12 months, the International Air Transport Association said on Tuesday in a press briefing here, where the trade body is based.
The forecast by the industry body is sharply lower from the $4.1 billion projected earlier in October due to measures taken by American carriers to deal with the economic crisis.
IATA had predicted a $4.1 billion loss for airlines in 2009 as recently as Sept. 3, based on an average oil price of $110 a barrel. With crude today trading at $43.46 and the association estimating a price of $60 next year, kerosene costs have eased for those carriers, many of them in the US, that were hardest hit in 2008 after struggling to secure hedging positions.
“The improvement is due to an extraordinary situation for North American carriers,” IATA Chief Executive Officer Giovanni Bisignani said at the briefing. “With very little hedging, they were hit with the full impact of high fuel. To cope, they cut capacity early and are now benefiting from the full impact of low spot prices.”
The predicted loss of $5 billion for 2008 is also lower than the previous estimate of $5.2 billion, which assumed an average oil price of $113 a barrel. During the year the loss projected by IATA has ranged as high as $6.1 billion in a worst-case scenario.
While IATA's loss estimates have eased, the industry group now forecasts that international traffic may decline 3 percent next year, the first drop since 2001, after earlier predicting a 2.9 percent increase.
“The situation is clearly an awful lot better than when oil was at $147 a barrel,” said Nick Cunningham, an analyst at London-based Evolution Securities, referring to the record price for crude reached on July 11. “However, the macroeconomic situation is dreadful and traffic is dropping very, very fast.”
Bisignani said 2009 would still be “another gloomy year.” North American carriers, likely to suffer a combined loss of $3.9 billion in 2008, will next year post a profit of about $300 million, still less than 1 percent of revenue, he said.
All regions other than North America will be unprofitable, IATA predicted. Losses in the Asia-Pacific region will be highest at about $1.1 billion, it said, with carriers there suffering most from a decline in air-cargo shipments.
All regions other than the US would slide into the red next year, IATA said.
European carriers would see losses multiply 10-fold to $1 billion in 2009.
“Europe's main economies are already in recession. Hedging has locked in high fuel prices for many of the region's carriers in US dollar terms, and the weakened euro is exaggerating the impact,” said IATA.
“US airlines have acted decisively this winter to cut capacity and push up average fares,” said Douglas McNeill, an analyst at Blue Oar Securities in London. “IATA's new forecasts reflect the success of that strategy, which is increasingly being adopted elsewhere. But the US carriers are also benefiting from their immunity to dollar strength, which their non-American rivals cannot replicate.”
The US dollar has gained almost 18 percent against the euro and 25 percent versus the pound in the past six month, reducing the benefit of the decline in the price of oil for non-US carriers. Crude is priced in the US currency.


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