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Airline trade group forecasts deeper 2009 losses

Source: Reuters - Wed 16th Sep 2009

The outlook for global airlines this year has worsened, with a leading trade group projecting $11 billion (6 billion pounds) in losses as weak passenger and cargo demand pressure revenues.

"The industry situation remains bleak" Giovanni Bisignani, director general of the International Air Transport Association trade group, said on Tuesday.

"With rising fuel costs and falling yields, recent optimism in the global economy has not appeared on the industry's bottom line."

Speaking to government and industry officials, Bisignani said the two-year downturn is worse than the financial hit carriers took after the September 11, 2001, hijack attacks on New York and Washington when travel was severely depressed.

"This is not a short-term shock" Bisignani said in projecting nearly $4 billion in losses for 2010.

His group estimated in June that airlines would lose $9 billion in 2009 after an $8.5 billion loss in 2008, when record high oil prices dragged down results.

The Geneva-based group's 230 member airlines account for some 93 percent of international air traffic. Members include British Airways, Cathay Pacific, Emirates and United Airlines.

During an earlier conference call with reporters, Bisignani said revenues were expected to slump by 15 percent this year and would not return to 2008 levels until 2012 at the earliest. 

Bisignani said smaller- and medium-sized carriers have not had the access to debt markets that their larger peers enjoy, putting them in a more fragile condition. In coming months the airline industry could see other bankruptcies, he said, declining to be more specific.

For 2009, IATA said it expects passenger traffic to fall 4 percent, compared with its June estimate of 8 percent. It sees cargo demand falling 14 percent.

The updated forecast assumes oil prices average $61 a barrel, up from $56 a barrel in the previous forecast.


Despite the dour forecast, sentiment on airlines has improved recently as cost-cutting has helped soften the blow from weaker demand and some airlines have said revenue trends may improve.

U.S. airline shares were mostly higher on Tuesday, with some carriers rising as much as 8 percent. The Arca Airline Index was up more than 4 percent.

Among non-U.S. carriers, Air France-KLM rose 1 percent in Paris and British Airways was flat in London trading.

"The dynamics of the U.S. airline industry are very different from the dynamics of the global airline industry" that IATA represents, said Michael Boyd, an airline consultant.

For instance, he said non-U.S. carriers such as Japan Airlines are highly dependent upon international travel that has taken a hit in the recession, unlike U.S. airlines. 

On Monday, Delta Air Lines Inc, the world's largest carrier, boosted its operating margin forecast for the third quarter, citing an estimated drop in fuel costs.

After Delta's improved outlook, many investors are betting that other U.S. airlines will come out with similarly positive announcements, said airlines analyst Helane Becker of Jesup & Lamont Securities.

"The realization that everyone else is going to put out guidance is maybe catching up to people," Becker said in explaining the airline stock rally on Tuesday. In a research note Monday, J.P. Morgan analyst said he expected Continental Airlines to be the next to unveil an improved outlook.

The new forecasts could spur a rash of analyst upgrades, which would bode well for stocks.

"A lot of stocks are rated 'hold' or 'sell' by a lot of analysts" Becker said. "There is room for analyst upgrades."

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