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:
- It is expected that the industry will remain in loss in 2010, although this will fall from $11 billion in 2009 to $5.6 billion.
- Airline industry financial performance began to show signs of improvement during the third quarter, following deterioration during the first half of the year. A move out of recession and to stronger economic growth, particularly in emerging markets, boosted first air freight and then air travel. This traffic recovery continued into Q4.
- Economic growth forecasts for 2010 have been revised up, however risks associated with rising fuel costs and return of excess capacity could dampen full-blown recovery somewhat. Recovery is also uneven geographically with Asia seeing the early fruits of economic upturn while US and Europe lag. Losses will diminish significantly but a recovery to net profit looks unlikely until 2011.
- Economic growth has been stimulated by government programmes and central bank action aimed at boosting domestic spending. The revival of world trade and cross-border transactions has been slower than in past recovery phases. As a result business travel has not rebounded from recession as vigorously as in previous cycles. The same is true for air freight volumes.
- Perhaps the biggest risk in the business environment ahead is the latent capacity overhanging yields. Utilization rates fell dramatically during the recession as airlines cut the number of hours their aircraft flew. With a further 1300+ aircraft (5.5% of the fleet) due to be delivered in 2010 and the return to more aircraft utilization, it is going to be extremely difficult to keep capacity growth down.