IATA expects normal growth will not resume until 2011

Washington DC
Source:
This story is sourced from Pro
See more Pro news »

IATA expects passenger demand to fall further and warns it could take longer for a recovery to emerge compared to previous recessions.

Last week IATA reported a 10% drop in international RPKs for February and widened its loss estimate for 2009 from $2.5 billion to $4.7 billion. IATA chief economist Brian Pearce says the association also has adjusted downward its forecast for 2010 as it sees a "weakened and delayed recovery".

"The speed of recovery will be a lot slower than in the past," Pearce told reporters at a briefing today at IATA's Washington office.

He adds in a "normal" cycle, there would be a sharp rise in cargo traffic figures from late 2009 or early 2010 and a sharp rise in passenger figures about six months later. But this recession is expected to be different although it is difficult to predict exactly how long it will be before there are sharp increases in traffic figures.

Pearce would not provide a loss or profit estimate for 2010, saying this estimate will not be made public until May or June. But he says the new 2009 estimate of a $4.7 billion loss is worse than the 2010 figure as IATA sees some stabilization and "weak growth" taking place next year.

"We do expect to see some recovery in 2010," Pearce says.

But he adds given the expected slower than usual pace of the recovery IATA does not expect "stable growth" to resume until 2011.

"We see 2011 [as the return] for a more normal growth rate," Pearce says.

A key factor behind IATA's projection of a slow recovery is the lack of available credit. "It seems commercial banks in spite of the bailouts are not in position to loan freely," Pearce says.

He adds this affects consumer demand as well as the ability of airlines to recapitalize. He says it is critical for governments to provide sufficiently large stimulus packages because "the private sector is not there to spend".

He points out some economists believe stimulus packages valued at up to 10% of GDP are required. US President Barack Obama's package is only worth about 5% to 6% of GDP.

"Our recovery is critically dependant on governments producing stimulus packages of sufficient amounts," Pearce says.

Pearce adds it is also critical that governments do not become protectionist. "We need world trade," he says. "We need developing nations to recover as well."

If governments do not spend enough, the risk is job losses will continue and consumer confidence will continue to decline, which in turn affects travel demand.

IATA is now projecting a 12% drop in industry revenues this year to $467 billion and a 6% drop in international RPKs. Pearce says IATA's new forecast has total RPKs in 2009 and 2010 at 17% below the levels they were projected to be in its pre-crisis forecast.

Pearce warns the fact the recovery could take longer than usual to surface could put airlines in a precarious position. He says airlines with the most cash "are in the best position because we face a weakened and possibly delayed recovery". He adds most airlines outside the US "have entered the downturn in a worse cash situation than other downturns".

US carriers are in relatively better position. "They have shrunk domestic capacity so much they are in a more robust situation to ride out the downturn," Pearce says.

The only silver lining is the relatively low price of oil, which IATA believes has already saved many airlines from going bust. IATA expects airlines will pay on average $50 per gallon of fuel this year, compared an average of $99 to $100 last year.

"If oil prices spike up again that's a problem," Pearce says. "We're expecting oil to remain relatively low."

He adds airlines typically see their unit costs increase in a downturn because they do not have the ability to lower fixed costs. But with fuel prices expected to stay low, this downturn will likely be different.