Airline industry confidence continues to decline-IATA

BY AGENCIES

AIRLINE industry confidence has continued to decline, according to the International Air Transport Association (IATA).

In its January survey of Chief Financial Officers (CFOs) and heads of cargo, IATA notes a majority of respondents reported deteriorations in profitability in the fourth quarter and the trend is expected to continue in the year ahead.

IATA noted there was a particularly sharp decline in expectations for traffic growth, both in recent months and for the next 12 months.

"The persisting weak economic conditions could now finally be starting to take a toll on passenger travel, which has been relatively resilient during 2011. Indicators of business confidence and trade have registered no growth recently, and that is now reflected in the survey responses for cargo traffic," the airline body said.

Input costs remained high in Q4, with 73% of CFOs and cargo heads indicating they experienced upward cost pressure. The outlook, however, shows some relief and in anticipation of weaker economic conditions, there is an expectation unit cost pressures will ease back to levels experienced in 2010.

Yield expectations remain at low levels, with passenger yields expected to do little better than stabilise over the next 12 months. Cargo yields came under significant demand pressure in Q4 and breakeven load factors remain high as a result.

"Profit and traffic confidence expectations have now fallen to levels seen at the start of 2009, a period when the industry was generating losses and travel volumes had weakened sharply," IATA noted.

IATA added that confidence in airline profitability deteriorated markedly in the January survey, with about 63% of respondents reporting a decline in profitability in the last three months, a greater proportion than in October of 2011.

Furthermore, the outlook for the next 12 months has also become increasingly pessimistic, with almost 52% of respondents expecting a decrease in profitability. The negative outlook for airline profitability is concurrent with the expected weak economic backdrop.

With advanced economies anticipating a further slowdown in growth in 2012, the outlook for air traffic volumes has become increasingly negative. Relative to October 2011 survey results, a larger share of respondents are now reporting weaker traffic flows over the last three months, and also weaker expectations for the 12 months ahead - in both passenger and cargo markets, it said.

For passenger travel, 39% of survey respondents recorded a decrease in the fourth quarter of 2011. Almost 28% of respondents expect further decline in the next 12 months, and a majority (44%) expect no change in the year ahead. Only 28% are optimistic for improvement in traffic.

The results of air cargo are very similar. Although there are some expectations for improvement in the coming 12 months, 44% of respondents are expecting further deterioration in traffic.

"Indicators of business confidence and trade have registered no growth recently, and that is now reflecting in the views airlines CFOs and cargo heads," IATA said.