IATA reports rising costs, falling loads for carriers

6th May 2011

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Carriers face fresh financial pressure amid falling load factors and rising fuel costs, airline association IATA has warned.

IATA reports a cumulative net loss by scheduled airlines in the first three months of the year and forecasts further pressure on profits from fuel prices and weak demand through the current quarter.

Noting the price of jet fuel is above $140 a barrel and approaching the highs of 2008, the association warned yesterday: “When oil prices spiked in 2008, the financial crisis and recession pulled them back. This time the economy seems stronger. Manufacturing was already contracting when oil prices peaked in mid-2008.”

IATA suggests fuel prices may not come down this year.

It reported: “Air travel markets contracted in March for the second consecutive month. Capacity continues to expand faster than demand. Passenger load factors have slipped back 4% points from the 2010 peak to below pre-recession levels.

“Capacity did not slow to match weaker demand. It had already been expanded at a faster pace than demand through 2010. Both passenger and freight capacity are expanding at a pace of around 9% compared with traffic volumes growing at half that pace. Supply-demand conditions look set to loosen further during the second quarter."

IATA added: “The sharp improvement in yields and revenues in late 2009 and through 2010 owed much to the improvement in load factors to record levels. That process has now shifted into reverse. Passenger load factors in March slipped below their equivalent levels in 2008.”

The association notes airline share prices have lost 9% in value globally so far this year, while share prices generally have risen 8% - meaning carriers are underperforming the world’s stock markers by 17 percentage points. US airlines have performed the worst – losing 70% of the gains of last year.

IATA said: “The key issue for airlines now is whether the recent sharp fall in load factors and weakening in supply-demand conditions will allow fuel costs to be recovered. Fare rises and fuel surcharges appear to be sticking so far, but there are signs that price-sensitive passenger demand is weakening.”