After optimistic noises and glimpses of recovery, confidence things are improving for the beleaguered airline sector is starting to emerge. A faster than expected recovery in some markets, notably Asia, has prompted IATA to halve its industry loss forecast for 2010 to $2.8 billion.
The projection may still be a loss, but after numerous downward revisions, airlines can start to see the corner turned. The last time IATA improved its outlook, a minor tweak in December 2008 to reflect oil price falls, the gains were swiftly blown away by onerous fuel hedging contracts. Before that, September 2007 was the last time IATA was able to revise upwards its forecast.
"For a change we have some good news to present," IATA director general Giovanni Bisignani said in presenting the new outlook. "It is still a loss, so it is probably too early to have a great party to celebrate, but it is something very positive for the industry. We can clearly see from the numbers that the industry situation is improving."
|Bisignani: It is still a loss, so it is probably too early to have a great party to celebrate.|
The stronger year-end led IATA to cut nearly $2 billion from the 2009 loss to $9.4 billion, while falls of 2.7% and 8.2% for 2009 on the passenger and cargo side respectively reported by airports body ACI World were not as bad as first feared. ACI director general Angela Gittens says: "We recognise the economic cautions ahead, but early indications for January and February confirm continuing global traffic stabilisation with reports of renewed domestic and international demand in many localities."
Airbus has been encouraged enough to increase its production rate for single-aisle aircraft to 36 a month from December 2010, saying "now it is definitely the time to think ahead".
But the World Travel and Tourism Organisation in its latest forecast remains cautious. "Despite recent encouraging short-term indicators of tourism activity, the recovery in world travel and tourism is expected to be muted, with both firms and households examining travel plans carefully and continuing to limit expenditure," warns WTTC president Claude Baumgarten.
|IATA's improve outlook|
|Pax demand from 4.5% to 5.6%|
|Cargo demand from 7% to 12%|
|Pax yields flat to 2%|
|Cargo yields flat to 3.1%|
|Fuel price from $75 to $79|
|Revenues from $479b to $522b|
|Industry loss from$5.6b to $2.8b|
In Asia, for example, Bangkok Airways president Puttipong Prasarttong, who is projecting a return to growth for the carrier this year, cites the strong start to 2010. "I see from the first two to three months of this year we are coming back. In the first two months you can see headcount coming back and the yield gradually rising." While not back to previous levels, he says yield is "getting back more positive".
No Reason To Relax
Lufthansa executive vice-president marketing and sales, Thierry Antinori, says: "We have seen some positive impact in some markets, especially in the long-haul and especially Asia-Pacific. [But] travel policies are still very strict. There is no sustainable global recovery perceptible now. There are some positive signs, but there is no reason to relax. It [the recovery] began with Asia-Pacific coming back, particularly Korea, China and Japan. We had signs before and now the proof is in the bookings. The last remaining areas, in our business will come from Europe."
Concerns still remain around hard-hit premium traffic. "We see the numbers are rising along with improved economic conditions, it is still a cyclical improvement. Yields are still down by 20%," says Bisignani, adding concerns this might be structural rather than cyclical in some markets, notably in domestic USA and intra-European markets.
Fuel remains a concern on the horizon. IATA is now factoring an average $79 per barrel price for oil, compared to $75 it predicted in December. "The risk is that the pace of the broader economic recovery pushes the fuel price higher. And unfortunately there is a risk that fuel goes up faster than the economy," says Bisignani, adding airlines would struggle to apply fuel surcharges in the current weak environment.
He also flags concerns costs elsewhere could rise if it is perceived the good times are back. "The caution that comes with this more optimistic outlook must be understood by all the players in the industry," he say, reminding unions and industry partners that the sector remains in the red. "This is no time for increases in salaries or the prices for services we pay for. And it is certainly not the time for strikes."
Gulf Air chief executive Samer Majali echoes the frustration for airline chiefs trying to predict what will come. "Running an airline is all about looking at the future. It is a judgement, and that is why it is so difficult. The problem is we are so affected by external factors," he says. "People are just cautious, they are just hoping for a bit more firming up [of the recovery]." And while he believes yields and traffic will improve this year, he adds: "I hope the fuel price does not wipe it out, just to give the industry a bit of breathing space."