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Middle East carriers could see losses mounting to USD 200 million in 2009: IATA

Airlines in the Middle East will see their losses double to USD 200 million (Dh 735 million) in 2009 as the global aviation industry faces falling revenues due to the economic slowdown. As per a recent report in gulfnews.com, this forecast was put forward by International Air Transport Association (IATA) recently while releasing its annual financial forecast and reports on industry trends. “We will face a loss in revenue to the tune of USD 35 billion in 2009. We have never had this before in the history of modern aviation,” said Giovanni Bisignani, Director General, IATA. Geneva-based IATA said the challenge for the region will be to match capacity to demand as fleet expands and traffic slows, particularly for long-haul connections.

IATA said the global aviation industry will lose USD 2.5 billion in 2009 on top of the USD five billion it is forecast to lose this year. The sharp fall in fuel prices, which could have placed the industry in a positive financial position, will be offset by the excessive loss of revenue. This fall in revenues will be the highest the industry has suffered in 50 years. Industry revenues are expected to decline to USD 501 billion from the USD 536 billion forecast for 2008. This drop is the first since the two consecutive years of decline in 2001 and 2002.

“This is going to be a very challenging 12 to 18 months for airlines throughout the world. Airlines in the Middle East will not be able to escape those pressures. The principal pressure is the falling demand for air travel,” said Brian Pearce, Chief Economist, IATA. While industry losses this year are due to the high oil prices that hit USD 147 per barrel in July this year, the coming downturn is caused by the failing financial market that has led to low consumer and business confidence, resulting in low demand.

“Confidence is at its lowest level for 40 years, and worse than each of the previous three recessions. A three per cent fall in passenger numbers is expected in the coming year, and no recovery is expected until 2011,” said Pearce. Most of the fall will be in the premium passenger segment, which fell seven to eight per cent in September 2008, compared to a three per cent drop in Economy Class passengers. The benefit of low fuel prices will be delayed by hedging as airlines have already bought into the high prices early this year.

While losses are expected to deepen in all regions, the US will bounce back sooner than the others, as it has had low hedging and high exposure to the changes in prices, said IATA. “While we expect the spot price of jet fuel to be 40 per cent lower in 2009, the effective price paid after hedging is likely to be only 10 to 15 per cent,” concluded Pearce.

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