Strong Start to 2010

The International Air Transport Association (IATA) halved its loss forecast for 2010 to US$2.8 billion (compared to the US$5.6 billion loss forecast in December 2009). The improvement is largely driven by a much stronger recovery in demand seen by year-end gains that continued into the first months of 2010. Relatively flat capacity translated into some yield improvement and stronger revenues.

IATA also lowered its 2009 loss estimate to US$9.4 billion from the previously forecast US$11.0 billion loss.

Improvements are driven by economic recovery in the emerging markets of Asia-Pacific and Latin America whose carriers posted international passenger demand gains of 6.5% and 11.0% respectively in January. North America and Europe are lagging with international passenger demand gains of 2.1% and 3.1% respectively for the same month.

“We are seeing a definite two-speed industry. Asia and Latin America are driving the recovery. The weakest international markets are North Atlantic and intra-Europe which have continuously contracted since mid-2008,” said Giovanni Bisignani, IATA’s Director General and CEO.

Forecast highlights include:

• Improving Demand: Passenger demand (which fell by 2.9% in 2009) is expected to grow by 5.6% in 2010. This is an improvement on the previous forecast in December of 4.5% growth. Cargo demand (which fell by 11.1% in 2009) is expected to grow by 12.0% in 2010. This is significantly better than the previously forecast 7.0% growth.
  
• Load Factors: Airlines kept capacity relatively in line with demand throughout 2009. A strong year-end recovery pushed load factors to record levels when adjusted for seasonality. By January the international passenger load factor was 75.9% while cargo utilization was at 49.6%.
  
• Yields: Tighter supply and demand conditions are expected to see yields improve—2.0% for passenger and 3.1% for cargo. This is a considerable improvement from the precipitous 14% fall experienced by both in 2009.
  
• Premium Travel: Premium travel, while slower to recover than economy travel, now appears to be following a cyclical recovery in volume terms. But it is still 17% below the early 2008 peak. Premium yields, which are 20% below peak, may be suffering a structural shift.
  
• Fuel: With improved economic conditions, the price of fuel is rising. IATA raised its expected average oil price to US$79 per barrel from the previously forecast US$75. That is an increase of US$17 per barrel on the US$62 average price for 2009. The combined impact of increased capacity and a higher fuel price will add US$19 billion to the industry fuel bill bringing it to an expected US$132 billion in 2010. As a percentage of operating costs, this represents 26%, up from 24% in 2009.
  
• Revenues: Revenues will rise to US$522 billion. That is US$44 billion more than previously forecast and a US$43 billion improvement on 2009.

“Revenues are half-way to recovery—US$42 billion below the 2008 peak and US$43 billion above the 2009 trough. Important fundamentals are moving in the right direction. Demand is improving. The industry has been wise in managing capacity. Prices are beginning to align with the costs—premium travel aside. We can be optimistic but with due caution. Important risks remain. Oil is a wild-card, over-capacity is still a danger, and costs must be kept under control—throughout the value chain and with labor,” said Bisignani.

Regional differences in airlines prospects are sharp:

[list[*]]Asia-Pacific carriers will see the US$2.7 billion 2009 loss turn to US$900 million in profits on the back of a rapid economic recovery being driven by China. Cargo markets are particularly strong with long-haul cargo capacity for shipments originating in Asia experiencing a capacity shortage. Demand is expected to grow by 12% in 2010.

[*]Latin American carriers will post an US$800 million profit for the second consecutive year. The region’s economies are less debt-burdened than the US or Europe. Economic ties to Asia helped isolate the region from the worst of the financial crisis. Carriers in parts of the region have benefitted from liberalized markets which have facilitated some cross-border consolidation, giving greater flexibility to deal with changing economic conditions. Demand is expected to grow by 12.2% in 2010.

[*]European carriers will post a US$2.2 billion loss—the largest among the regions. This reflects the slow pace of economic recovery and faltering consumer confidence. Demand is expected to grow by 4.2% in 2010. Intra-European premium travel is expected to recover more slowly. In December it remained 9.7% below previous year levels.

[*]North American carriers will post the second largest losses at US$1.8 billion. The jobless economic recovery continues to burden consumer confidence. Demand is expected to improve by 6.2% in 2010. But with intra-North America premium travel still down 13.3% as of December, the region remains in the red.

[*]Middle East carriers are expected to experience demand growth of 15.2% in 2010, but will see losses of US$400 million. Low yields in long-haul markets connected over Middle East hubs is a burden on profitability.

[*]African carriers are likely to post a US$100 million loss for 2010, halving 2009 losses. Demand is expected to improve by 7.4%. But this will not be sufficient for profitability as they continue to face strong competition for market share.[/list]

Structural Adjustments

“The stark contrast between profitability among Asian and Latin American carriers while losses continue to plague the rest of the industry clearly demonstrates the fact that airlines have not been able to develop into global businesses. The restrictions of the bilateral system prevent the kind of cross border consolidation that we have seen in industries such as pharmaceuticals or telecoms. Airlines are battling the challenges of the financial crisis without the benefit of this important tool. It’s time for change,” said Bisignani.

In November 2009, IATA’s Agenda for Freedom initiative facilitated the signing of a multi-lateral statement of policy principles focused on liberalizing market access, pricing and ownership. Seven governments (Chile, Malaysia, Panama, Singapore, Switzerland, the United Arab Emirates and the United States) and the European Commission signed the document. Kuwait joined the group by endorsing the principles in March.

“The second stage talks between the US and Europe are the big opportunity for 2010. The slow recovery in both regions should be an invitation for change. Liberalizing ownership would boost both markets. Even more importantly, as these markets combined represent about 60% of global aviation it would send a strong signal for global change. Brands, not flags, must guide the industry to sustainable profitability. That cannot happen until governments throw away the outdated restrictions of the bilateral system,” said Bisignani.

View Giovanni Bisignani's speech
Full financial forecast

IATA press release No. 8, Geneva, 11 March 2010

Industry to Remain in the Red For 2010

The International Air Transport Association (IATA) today announced that January 2010 demand statistics for international scheduled air traffic that showed continuing improvement. Compared to the previous year, January passenger demand was up 6.4%. Against this improving demand, a 1.2% increase in passenger capacity in January pushed load factors to 75.9% (up from the 72.2% recorded for January 2009).

International cargo demand showed a 28.3% improvement with only a 3.7% increase in capacity. This pushed the cargo load factor to 49.6% which is a step-change from the 40.1% recorded in January 2009.

The large increases in year-on-year comparisons reflect a steady improvement from the precipitous fall in demand that characterized the early part of 2009 rather than a dramatic improvement in January. Compared to December 2009, and adjusting for seasonal variations, passenger demand grew by 0.5% while air freight volumes increased by 3.0%.

“Airlines have lost 2-3 years of growth. Demand is moving in the right direction. The 3.0% increase in freight volumes from December to January is particularly encouraging. We can start to see the future with some cautious optimism, but better volumes do not necessarily mean better profits. Passenger yields are still 15% below peak. And we expect 2010 losses to be US$5.6 billion,” said Giovanni Bisignani, IATA’s Director General and CEO.

There are large geographical differences in the improvements. The strongest upturns have been seen in markets where economic recovery from the recession has been strongest—Asia, Latin America and the Middle East.

International Passenger Demand
Compared to the low point in the cycle (February 2009) international passenger traffic is up 8.6%. The market has not yet recovered from the losses of 2008 and early 2009. Demand must improve by a further 2% to return to the peak levels of early 2008.

Asia Pacific carriers experienced a 6.5% increase in demand compared to the previous year. Of the improvement in demand seen since the early 2009 low point, 31% has been realized by carriers in the region which is leading the global economic recovery.

Carriers in North America and Europe saw demand increase by 2.1% and 3.1% respectively. Although both regions have gained 6% from the early 2009 lows, they remain 4-6% below the early 2008 peak levels. This reflects the jobless recovery from the recession in which consumers are focused on paying down debt.
Middle Eastern carriers grew throughout the recession. Growth accelerated to 23.6% in January.

Latin American carriers saw demand increase by 11% in January on the back of a strong regional economy.

African carriers recorded a 6.3% improvement in January, assisted by robust regional economic activity.

International Cargo Demand
Compared to the low point in the cycle (December 2008-January 2009), international freight traffic has regained about 28%. This is still 3-4% below the early 2008 peak level.

The sharp improvement in air freight, which accelerated to 3.0% in January compared to December, is being driven by businesses re-stocking depleted inventories. This part of the inventory cycle will not last much longer. Durable air freight growth will require consumers to start buying again and businesses to return to making investments. While these improvements are beginning to be seen in Asia, Europe and North America lag behind.

With an 11.6% improvement in January compared to the previous year, carriers in Europe stand out for their sluggish demand recovery. Freight volumes are only 7% above the December 2008 low and 15% below the cycle peak.

“We are starting to see some encouraging signs in demand, albeit with large differences among the regions. Unfortunately the constraints of the archaic bilateral system limit airlines from being able to respond as normal businesses to market opportunities. We cannot behave like normal businesses. Political borders limit opportunities for consolidation. And we still require governments to negotiate open markets” said Bisignani.

Under the auspices of IATA’s Agenda for Freedom initiative, in November 2009, seven governments (Chile, Malaysia, Panama, Singapore, Switzerland, the United Arab Emirates, and the United States) and the European Commissions signed a multilateral statement of policy principles focused on liberalization of the air transport industry. Premised on maintaining a level playing field, the policy principles support liberalization of ownership, market access and pricing. Its latest impact can be seen in the recent signing of an open skies bilateral agreement between Panama and Colombia.

“With each open skies bilateral, we take a step in the right direction. Recovering from the years of lost growth as a result of this crisis is a long and hard journey. Governments should not make it any more difficult by maintaining policies that restrict airlines ability to do business,” said Bisignani.

View full January traffic results

IATA press release No. 6, Geneva - 02 March 2010

Aircraft Accident Rate Drops In 2009 - Renewed Focus on Training, Data

The International Air Transport Association (IATA) announced the aviation safety performance for 2009 showing that the year’s accident rate for Western-built jet aircraft as the second lowest in aviation history.

The 2009 global accident rate (measured in hull losses per million flights of Western-built jet aircraft) was 0.71. That is equal to one accident for every 1.4 million flights. This is a significant improvement of the 0.81 rate recorded in 2008 (one accident for 1.2 million flights). The 2009 rate was the second lowest in aviation history, just above the 2006 rate of 0.65. Compared to 10 years ago, the accident rate has been cut 36% from the rate recorded in 2000.

In absolute numbers, 2009 saw the following results

• 2.3 billion people flew safely on 35 million flights (27 million jet, 8 million turboprop)
• 19 accidents involving western built jet aircraft compared to 22 in 2008
• 90 accidents (all aircraft types, Eastern and Western built) compared to 109 in 2008
• 18 fatal accidents (all aircraft types) compared to 23 in 2008
• 685 fatalities compared to 502 in 2008

“Safety is the industry’s number one priority. Even in a decade during which airlines lost an average of US$5 billion per year, we still managed to improve our safety record. Last year, 2.3 billion people flew safely. But every fatality is a human tragedy that reminds us of the ultimate goal of zero accidents and zero fatalities,” said Giovanni Bisignani, IATA’s Director General and CEO.

IATA member airlines outperformed the industry average with a Western-built jet hull accident rate of 0.62. That rate is equal to one accident for every 1.6 million flights. “In 2009 IATA marked an important milestone in aviation safety. From April 1, all IATA members were on the registry of the IATA Operational Safety Audit - a testimony to our commitment to the highest global standards for operational safety. IOSA is the global standard. Today 332 carriers are on the registry, including IATA’s 231 members,” said Bisignani.

There are significant regional differences in the accident rate.

• North Asia, Latin America and the Caribbean as well as the Commonwealth of Independent States (CIS) had zero western-built jet hull losses in 2009
• North America (0.41) and Europe (0.45) performed better than the global average of 0.71
• Asia-Pacific’s accident rate worsened to 0.86 in 2009 (compared to 0.58 in 2008) with three accidents involving carriers from the region.
• The Middle East and North Africa region saw its accident rate rise to 3.32 (compared to 1.89 in 2008) with four accidents involving carriers from the region.
• Africa had an accident rate of 9.94, significantly higher than their 2008 rate of 2.12. Africa has once again the worst rate of the world. There were five Western-built jet hull losses with African carriers in 2009. African carriers are 2% of global traffic, but 26% of global western-built jet hull losses.

An analysis of the causes of the 2009 accidents focuses on three main areas:

• Runway excursions continue to be a challenge and accounted for 26% of all accidents in 2009. However, the total number of runway excursions dropped by 18% (23 vs 28 in 2008). IATA released its Runway Excursion Risk Reduction Toolkit in 2009, with an updated version to be produced later this year. The toolkit is incorporated with IATA’s broad ranging safety data tools in the IATA Global Safety Information Center (GSIC), a customizable website which will enable users to extract relevant safety information through a single application and enable them to perform performance benchmark and conduct trend analysis and risk management.
• Ground damage accounted for 10% of all accidents in 2009. To improve safety and reduce this US$4 billion annual industry cost, IATA introduced the IATA Safety Audit for Ground Operations (ISAGO). Built on similar principles to IOSA, ISAGO is the industry’s first global standard for the oversight and auditing of ground handling companies. The first audits took place in 2008. To date a total of 149 audits have been conducted.
• While runway excursions and ground damage were the main categories of accidents, pilot handling was noted as a contributing factor in 30% of all accidents. IATA’s Training & Qualification Initiative (ITQI) is pushing for harmonizing a competency-based approach focused on training real skills while addressing threats presented by accident/incident reports and flight data collection and reporting. IATA will also work through ICAO to develop a Fatigue Risk Management System as part of the Safety Management System. This will be a new process to systematically manage crew fatigue taking into account changes in aircraft capabilities and airline operations.

These initiatives are consistent with IATA’s comprehensive Six-point Safety Program which focuses on infrastructure safety, safety data management and analysis, operations, Safety Management Systems, maintenance and auditing.

“Safety is a constant challenge. Having made aviation the safest way to travel, further improvements will come only with careful data analysis. We must understand the underlying safety risk trends, not just from the handful of accidents each year, but by bringing together and analyzing data from millions of safe flights. The IATA Global Safety Information Center was launched in December 2009 for just that purpose. Going forward our goal is to work with other organizations and governments involved in aviation safety to add to the database and drive even more improvements,” Said Bisignani.

View 2009 Aviation Safety Performance (pdf)

IATA press release 18 February 2010