U.S. Carriers May Be Only Bright Spot Amid Poor Global Airline Industry 2009 Outlook

by: David Hunkar

The Geneva, Switzerland-based International Air Transport Association (IATA) announced a revised outlook for the airline industry in 2009. Due to the worsening economic conditions worldwide, IATA increased the global loss outlook from $2.5B in December 2008 to an expected $4.7B loss in FY2009.

Some of the key points from the news release are:

  • Air Cargo demand is to decline 13% this year
  • Passenger traffic is expected to contract by 5.7% YoY
  • Asian carriers are going to be worst hit with a fall of nearly 7% in demand
  • To and from traffic to China and India will decline
  • North American carriers are expected to report a profit in 2009 due to careful capacity management and lower jet fuel prices
  • European demand will fall by nearly 7%
  • Demand in Latin America is projected to fall by 7.8%
  • The Middle East is the only region that is projected to have positive growth this year

Giovanni Bisignani, IATA’s Director General and CEO said:

“Fuel is the only good news. But the relief of lower fuel prices is overshadowed by falling demand and plummeting revenues. The industry is in intensive care. Airlines face two immediate fundamental challenges: conserving cash and carefully matching capacity to demand.”

The above statement is an excellent depiction of the current state of the airline industry.

Some of the airline ADRs are:

  • TAM (NYSE:TAM) and Gol Linhas Aereas Intelligentes (NYSE:GOL) of Brazil
  • RyanAir (RYAYY) of Ireland
  • China Eastern (NYSE:CEA) and China Southern Airline (NYSE:ZNH) of China
  • Lan Airlines (LFL) of Chile

Many of the US carriers such as Delta (NYSE:DAL), Continental (NYSE:CAL) and Southwest (NYSE:LUV) may perform better than their peers in other countries. However they will also be impacted adversely due to the slowing economy. Consumers will cut down on unnecessary travel while business travelers will use other means of communication such as video conferencing.