Airlines continue to fly high

Air travel remained a large and growing industry worldwide until last year. This year, its prob lems are compounded by the adverse effect on the industry caused by the global financial crisis and lately the swine flu menace that is spreading from country to country. Adding to the worsening situation are fuel prices that are rising once again and may result in various airlines introducing or reintroducing fuel surcharges. British Airways and Air India are not alone in asking staff to take salary cuts or delays in them being paid.
However, air travel has not taken as hard a beating as expected. Business and leisure travelers continue to fly, although not as frequently as they used to. Governments have been taking steps to promote air travel as it facilitates economic growth, world trade, international investment and tourism.
Business travel in particular had maintained a rising graph as companies became increasingly international in terms of their investments, supply and production chains and customers. The rapid growth of world trade in goods and services and international direct investment also contributed to growth in business travel.
In the leisure market, the availability of large aircraft made it convenient and affordable for people to travel further to new and exotic destinations. Governments in developing countries realized the importance of tourism to their national economies and encouraged the development of resorts and infrastructure to lure tourists from the prosperous countries in Western Europe and North America. In the case of Saudi Arabia, there has been the remarkable growth of religious tourism, funded by increasing prosperity of Muslims around the world and who can now comfortably afford to go on pilgrimage.
Nevertheless, the International Air Transport Association (IATA), which represents some 230 airlines comprising 93 percent of scheduled international air traffic, has revised its airline financial forecast for 2009 to a global loss of $9 billion. This is nearly double the association's March estimate of a $4.7 billion loss, reflecting a rapidly deteriorating revenue environment. IATA also revised its loss estimate for 2008 to $10.4 billion from the previous estimate of $8.5 billion.
Recession is the most significant factor impacting the industry's bottom line. IATA's revised forecast sees revenues declining an unprecedented 15 percent ($80 billion) from $528 billion in 2008 to $448 billion in 2009.
Air cargo demand is expected to decline by 17 percent. In 2009, airlines are forecast to carry 33.3 million tons of cargo, compared to 40.1 million tons in 2008. Passenger demand is expected to contract by eight percent to 2.06 billion travelers compared to 2.24 billion in 2008. The revenue impact of falling demand will be further exaggerated by large falls in yields -- 11 percent for cargo and seven percent for passenger.
The industry fuel bill is forecast to decline by $59 billion to $106 billion in 2009 (which will probably impact on oil prices). Fuel will account for 23 percent of operating costs with an average price of oil at $56 per barrel (Brent). By comparison, the 2008 fuel bill was $165 billion (31 percent of costs) at an average price of $99 per barrel.
Over the last decade, labor productivity in the industry improved by 71 percent. Fuel efficiency increased by 20 percent and load factors rose by seven percentage points. The dramatic downturn in demand could push nonfuel unit costs higher, which cannot be cut in proportion.
The industry crisis is making liberalization even more critical.One encouraging factor in the aviation industry is that there were fewer accidents in 2008. The total number of fatalities from aviation accidents dropped from 692 in 2007 to 502 in 2008.
This resulted in a 56 percent improvement in the fatality rate from 0.23 fatalities per million passengers to 0.13 per million passengers. This year, so far, the figure is 348 deaths in commercial passenger planes, the large bulk perishing in the Air France tragedy at the beginning of the month.
28/06/09 TradingMarkets

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Categories: Foreign Jun 2009, Indian Aviation- In General Jun 2009