Costly fuel means more woe for airlines: report

A plane passes the moon as it comes into land at Heathrow Airport in west London May 30, 2007.

GENEVA (Reuters) - The world's airlines are set to lose $5.6 billion next year, far more than previously estimated, with a rebound in passenger and air cargo demand only partly compensating for rising fuel costs, industry group IATA said.

In its latest outlook, the International Air Transport Association on Tuesday reaffirmed its projection for an $11 billion loss in 2009 -- a year its chief Giovanni Bisignani called "an Annus Horribilis" for the highly cyclical sector.

"The worst is likely behind us," Bisignani said. "For 2010, some key statistics are moving in the right direction."

IATA, whose 230 members include Cathay Pacific, Lufthansa, United Airlines and Emirates, said more people were choosing to travel by air and businesses were increasingly sending freight by air to meet renewed consumer demand around the world.

"Cargo demand is rising faster than world trade as depleted inventories are rebuilt," the Geneva-based group said.

But it warned that airline profits would be under pressure from higher from crude oil prices, expected to reach an average of $75 per barrel in 2010 compared with $61.80 in 2009. Brent crude traded at $71.84 in London on Tuesday morning.

IATA had previously said the global airline industry would lose $3.8 billion next year in tandem with a broad economic recovery.

In its new forecast, it said European carriers were set to generate the biggest losses of any region, at $2.5 billion, while Asian-Pacific carriers would fare best with losses of $700 million.

North American airlines would see their losses shrink to $2 billion, with Latin American carriers the only profitable regional grouping, it found.

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IATA Chief Economist Brian Pearce said that while more people worldwide were booking flights after a period of austerity following the financial crisis, it could take time for seats to fill up on some routes.

"I think the high level of consumer debt in North American markets especially will limit air travel for probably a number of years," he told journalists at IATA's headquarters near Geneva airport.

Asked about a looming strike by British Airways crew over Christmas, Pearce said fuel and wages amounted to major outlays for carriers that had to be controlled wherever possible in the current climate.

"If an industry is facing declining yields it is going to have to cut its unit costs wherever it can to stay in business," he said. "Airlines are going to have problems when their wage costs are out of kilter with the wider environment for wages and wage levels."

Bisignani agreed, saying that carriers would not be able to bear cost increases indefinitely.

"Everyone working in an airline must realize that when you are going through turbulence, you have to tighten your seatbelts," the IATA chief said, signaling that more mergers and tie-ups would help bigger carriers survive.

"Consolidation is the great hope," he said. "The industry cannot afford the mounting losses of the status quo."

While Bisignani doesn't expect major bankruptcies in the near future, "smaller airlines have difficulty accessing credit and as a result are fragile."

(Writing by Laura MacInnis; Editing by Stephanie Nebehay, Jonathan Lynn, John Stonestreet)