Demand up, loss estimate for airlines cut

LONDON — Airlines worldwide will lose a collective $2.8 billion in 2010, half the previous forecast, as emerging markets lead a rebound in traffic, the International Air Transport Association (IATA) said.

The loss estimate was cut from $5.6 billion after a "much stronger recovery in demand" at the end of 2009 that continued into the first months of this year, the association said Thursday.

Losses last year probably amounted to $9.4 billion rather than the $11 billion previously estimated, IATA said. Traffic will increase about 5.6 percent in 2010, with the recovery in Western markets lagging behind growth in emerging economies.

"It's going slowly, but it's improving and at least we are starting to have some positive remarks" from airlines, IATA Chief Executive Officer Giovanni Bisignani said Thursday in a Bloomberg Television interview. "Things are moving quite well" in a positive direction.

Earnings are picking up after the industry reined in capacity, allowing airlines to lift average fares and boost revenue as demand increases, Bisignani said. Yields — a measure of ticket prices — should gain 2 percent this year after a 14 percent decline in 2009, he said.

Investors in the U.S. industry, which includes Delta Air Lines and American Airlines, the world's largest carriers, are betting that the worst is past. The Bloomberg U.S. Airlines Index rose 18 percent this year through Wednesday, compared with gains of 7.1 percent and 1 percent for gauges of Asia-Pacific and European carriers.

By region, European carriers probably will suffer the biggest loss, at $2.2 billion, followed by North American airlines at $1.8 billion on concern that job losses will be a drag on consumer spending, IATA said.

Asia-Pacific carriers are projected to post a $900 million profit as China drives growth, reversing a $2.7 billion loss in 2009. Latin American operators may earn $800 million, matching last year's performance, according to the trade group.

IATA said airlines' cuts in seating capacity helped them fly fuller planes, with the average load factor on international flights reaching 75.9 percent in January.

Global industry revenue is likely to be $552 billion this year, $43 billion more than in 2009, Bisignani said on a conference call. That's still $42 billion less than the peak in 2008.

IATA raised its forecast for the average price of oil this year to $79 a barrel from $75 and now estimates fuel will make up 26 percent of operating costs, versus 24 percent in 2009.

Crude prices may outpace economic growth, making it tough for airlines to pass the cost to passengers through surcharges, Bisignani said. A surge in fuel prices two years ago began a crisis that deepened as demand for travel tumbled in the credit crisis and global recession, resulting in the collapse of 34 airlines since 2008.

The industry has lost $50 billion in the past 10 years, with last year's drop in passenger demand the worst since World War II, IATA said on Jan. 27. The slump pushed carriers including British Airways and Singapore Airlines into losses and forced Japan Airlines to file for bankruptcy.

Cargo demand is expected to increase 12 percent worldwide, IATA said, better than the 7 percent previously forecast. Asian air-freight markets are particularly strong, with shipments originating there experiencing a capacity shortage.

Margaret Brennan and Mary Jane Credeur contributed to this report.