IATA revises forecast: Middle East to see $900m loss

IATA has revised its forecast about the state of the air transport industry. It says that even though the Middle East will see a demand increase of 1.2% a capacity growth of 3.8% will overshadow this and that the region will lose $900 million in 2009.

While the growth figures are significantly below the double-digit growth of previous years the Middle East continues to add capacity ahead of demand. IATA predicts a loss of $900 million, a deterioration of last year’s $800m loss.

IATA said that much of the 2009 deterioration forecasted had happened by January. And as manufacturers end their de-stocking there should be a modest bounce in air freight as component shipping rises a little. Yet in stark contrast weak consumer and business confidence is expected to keep spending and demand for air transport low.

“The prospects for airlines are dependant on economic recovery. There is little to indicate an early end to the downturn. It will be a grim 2009. And while prospects may improve towards the end of the year, expecting a significant recovery in 2010 would require more optimism than realism,” said Giovanni Bisignani IATA’s chief executive.

Giovanni Bisignani

Bisignani also cautioned that this crisis must bring change. “Recovery will not come without change. There is no doubt that this is a resilient industry capable of catalysing economic growth. But we are structurally sick. The historical margin of this hyper-fragmented industry is 0.3%. Bail-outs are not the prescription to return to health. Access to global capital, the ability to merge and consolidate and the freedom to access markets are needed to run this industry as normal profitable business. This is IATA’s Agenda for Freedom - and a very cost effective solution for governments desperate to stimulate their economies,” said Bisignani.

While globally IATA predicts a $4.7bn loss over its figure of $2.5bn just last December. “The most shocking difference between the two forecasts is the revenue line. In December, we were predicting a US$35 billion drop in revenues - 6.5%. With today’s forecast, the loss in revenue has grown to US$62 billion - 12%. This crisis is re-sizing and re-shaping this industry,” said Bisignani. “What has happened in the last few months?” he asked.

“First demand has fallen sharply. In January, passenger demand fell 5.6% exaggerated by a 16.7% fall in premium traffic, where airlines make their money. An even bigger indicator is cargo, 23.2% down in January. This is a leading indicator not just for airlines but for the whole economy. Air cargo represents 35% of the value of goods traded internationally. A slowdown in cargo means that consumers are not buying and manufacturers are not producing. And we can fully expect that the economic downturn will get worse before it gets better,” he said.

Bisignani warned that resizing the industry will be much tougher than the adjustments after 9/11 or SARS. He said: “The industry is in intensive care.

“Unlike previous crises, which had a geographic focus, this one is global,” he warns.