Sunday, June 7, 2009

Airline Industry outlook grim

Demand for air travel could decline further despite signs of a more stable global economy, and prospects of a recovery this year look slim, industry executives said at a meeting of the world's airlines on Sunday.

Airlines have been suffering from weaker demand because of the financial crisis and have also been hurt by the sharp fluctuations in oil prices in the past year.

"I think it's probably going to get worse," Rob Fyfe, chief executive of Air New Zealand, told Reuters in an interview on the sidelines of an International Air Transport Association (IATA) board meeting.

The bearish comments contrast with the more positive outlook from some global policymakers and economists about a global recovery in the wake of recent data such as the slowing pace of U.S. job losses.

Airlines have cut capacity and jobs in response to a slide in profits, and some have delayed or cancelled orders for new aircraft from plane makers Boeing and Airbus, a unit of EADS.

Fyfe said unemployment is still rising and that airlines will still need to address excess capacity. The full impact of the downturn was unlikely to be seen until the traditionally weak northern hemisphere winter, he warned.

But he said that Air New Zealand is not changing its plane orders or profit guidance for this year.

Deutsche Lufthansa's Swiss unit reiterated the gloomy outlook for the industry, saying that premium passenger and cargo demand had stabilised but prospects of a recovery this year were unlikely.

"Cargo demand has stabilised at a very low level, which is giving good reason for substantial concern for the future of this business," Chief Executive Christoph Franz told Reuters.

"The same is true for passengers in business and first class," he added.

"We are not forecasting a miracle in coming months."

More recently, outbreaks of the new H1N1 swine flu virus have added to the gloomy prospects for global air travel and tourism.

According to the World Health Organisation, the new influenza strain has been found in 64 countries, and remains most prevalent in North America. WHO labs have confirmed nearly 19,000 infections.

Industry analysts have warned that any recovery in the sector is months away, as consumers cut back on air travel for business or holidays and as a drop in global trade hits cargo.

The Organisation for Economic Development and Cooperation (OECD) said last month that it expects members economies to contract 4.3 percent this year but that a recovery could begin at the end of 2009.

Damien Horth, head of Asia transport research at UBS AG, told Reuters last week that he does not expect a recovery in cargo until the fourth quarter, when firms which have run down their inventories during the crisis will then start to restock.

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