MONTREAL - Soaring fuel costs and a sluggish global economy have created a perfect storm for the world's airlines, which are expected to lose more than US$5.2 billion in 2008, according to a forecast released Wednesday by the industry.
North American carriers are expected to suffer the most, accounting for US$5 billion of the total loss, the International Air Transport Association said in a revised forecast. That doesn't include billions of dollars in restructuring costs.
That will reverse a $5.6-billion profit in 2007, IATA said.
Asia Pacific profits will be cut to US$300 million, one-third of their 2007 total.
European airline profits are expected to decrease to $300 million from $2.1 billion and the Middle East earnings should be shaved to $200 million. Losses in Latin America and Africa will increase to $300 million and $700 million respectively.
IATA director general Giovanni Bisignani calls the situation "bleak" as high oil prices and falling demand hurt the industry's profitability.
"The industry is in an extraordinary situation. We are in a perfect storm of rising costs, particularly oil, and falling demand," he said in a news conference from the association's Montreal headquarters.
In June, IATA forecast losses would range between $2.3 billion and $6.1 billion.
The revised forecast is based on an average crude oil price of US$113 per barrel or US$140 for jet fuel. The increase from US$73 per barrel a year ago has raised total fuel bills by US$50 billion to an estimated US$186 billion. Fuel is expected to represent 36 per cent of operating costs, up from 13 per cent in 2002.
Challenging market conditions in 2009 are expected to result in US$4.1 billion of additional losses as weaker economic growth expands beyond the United States.
"I think 2009 will still be a very, very difficult year so fasten your seatbelt for at least another two years," Bisignani said.
Although oil prices have recently fallen, they are still about 55 per cent higher than last year.
Airline passenger traffic in July fell 1.9 per cent compared to 2007, the lowest level in five years.
Capacity increased by 3.8 per cent, indicating that service cuts have not kept pace with falling demand.
Asia Pacific carriers saw demand fall by a surprising 0.5 per cent, partly attributable to a change in Chinese visa requirements.
Cargo demand also contracted by 1.9 per cent, with Asian carriers experiencing a 6.5 per cent drop.
Airlines face a situation that is worse than the aftermath of the Sept. 11, 2001 terrorist attacks when 11 carriers went bankrupt. So far this year, 26 airlines have suspended service, including last week's decision by Canada's Zoom Airlines to stop flying.
Another 11 to 15 airlines worldwide are on an IATA watch list but Canada's largest carriers are considered to be in good shape relative to their counterparts elsewhere.
Bisignani called on governments to reduce taxes, airport fees and other charges, while also allowing greater consolidation in the industry.
There are more than 1,000 airlines around the world. Other important sectors such as steel, pharmaceutical, chemical, food and autos have much fewer players, he said.
"I hope that this very difficult situation could be an alarm bell for government to start to change."
