ATW Daily News

IATA: Recovery from downturn to be 'a lot slower' than previous rebounds

Tuesday March 31, 2009

Airlines' recovery from the current recession will be slower than in previous downturns owing to a substantial debt burden for consumers and businesses that is likely to curtail spending even after economic growth returns, IATA Chief Economist Brian Pearce told reporters yesterday in Washington.

"[Airline] customers, both households and businesses, have been left with a massive amount of debt and [have experienced] a deterioration in wealth," he explained. "I think people are going to be looking to pay down debt [rather than spend]. . .The speed of the recovery is going to be a lot slower than in the past." He added that airlines' recovery "is critically dependent on government stimulus packages of a sizable amount to offset the debt situation."

He warned that slow recovery means aircraft order backlogs at Boeing and Airbus "are vulnerable. . .I think we are likely to see a significant fall in aircraft deliveries over the next couple of years."

Pearce noted that airlines generally see a "sharp uptick" in passenger and cargo demand following economic downturns but projected that will not be the case this time. "We're really looking to 2011 to see normal growth rates," he said. "The danger is we have a Japanese experience with an L shaped downturn and recovery. . .If it weren't for the collapse in oil prices, airlines would be in extreme difficulty."

IATA is projecting a $4.7 billion loss for the global airline industry in 2009 with a 12% year-over-year decline in revenue (ATWOnline, March 27). Pearce explained that the recession, which started as a credit crisis in the US and Europe, "has moved pretty decisively to a crisis in manufacturing." Industrial production has fallen 15%-30% worldwide, an "unprecedented" drop that has hit airlines in two areas closely tied to manufacturing output: Cargo and premium travel. "Manufacturers were suddenly left with this massive overhang of inventory, so they stopped shipping," he said. "We have never seen the cargo business hit so badly."

He said airfreight traffic, which has fallen more than 22% in each of the last three months, may have "hit a floor. . . [but] we're nowhere near where we can say we're anywhere close to normal growth. If you look at business confidence in the US and Europe, it's still rock bottom."

by Aaron Karp

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