Thursday, January 28, 2010

The International Air Transport Association (IATA) said on Wednesday that 2009 was the “worst year” that the airline industry has ever seen since 1945.

“In terms of demand, 2009 goes into the history books as the worst year the industry has ever seen,” said IATA boss Giovanni Bisignani. “We have permanently lost 2.5 years of growth in passenger markets and 3.5 years of growth in the freight business.”

According to the group, passenger traffic was down by 3.5% compared to a year earlier, and freight by 10.1%. The group estimated that the airline industry lost a total of US$11 billion in 2009 last year, and will lose another $5.6 billion in 2010.

Airlines in Africa had the biggest passenger demand drop, at 6.8%; North American airlines and Asian carriers had demand go down 5.8%. European airlines saw a drop of 5%. Middle Eastern and Latin American carriers, however, had rises in demand, with gains of 11.3% and 0.3%, respectively. According to the Agence France-Presse news agency, part of the reason Middle Eastern carriers performed better is because of their position between Asia, Africa, and Europe, resulting in more connecting flights through hubs.

“While both North American and European carriers saw demand improvements in the first half of the year, the second half was basically flat,” said IATA.

IATA represents 230 airlines, accounting for 90% of scheduled air traffic, although some budget carriers are not included.

The IATA boss said that, although the worst appeared to be over due to the global economic recovery airlines would have to keep their costs low. “Revenue improvements will be at a much slower pace than the demand growth that we are starting to see,” he noted.

“Profitability will be even slower to recover and airlines will lose an expected 5.6 billion dollars in 2010. The industry starts 2010 with some enormous challenges. The worst is behind us, but it’s not time to celebrate. Adjusting to 2.5 to 3.5 years of lost growth means that airlines face another spartan year, focused on matching capacity carefully to demand and controlling costs,” Bisignani continued.

Costs for security were also an issue. Bisignani said: “Governments and industry are aligned in the priority that we place on security. But the cost of security is also an issue. Globally, airlines spend US$5.9 billion a year on what are essentially measures concerned with national security. This is the responsibility of governments, and they should be picking up the bill.”

Analysts, however, say that cost cutting measures, intended to attract more customers, would also harm airline profits. Saj Ahmad, an independent airline analyst, commented: “Continued fare wars between airlines mean that yields and profitability will be low. Airlines are struggling to fill their airplanes and discounted ticketing has done little to alleviate the pressures on their costs,” as quoted by the BBC.

“Capacity has come out of the global airline system, but until a few airlines perhaps exit the industry through bankruptcy or mergers, there is still a very long road until we see serious stability, let alone growth,” Ahmad added.