The global airline industry, still staggering from huge losses and bankruptcies late last year caused by oil prices that moved over $140 a barrel, is not doing much better in 2009. Low passenger traffic is the chief culprit, but crude at $70 after a sharp dip early in the year puts on significant addition pressure.
The International Air Transport Association (IATA) released its new forecast for worldwide airline losses this year and it moved up $2 billion to $11 billion. “The bottom line of this crisis – with combined 2008-9 losses at US$27.8 billion – is larger than the impact of 9/11,” said Giovanni Bisignani, IATA’s Director General and CEO.
The industry is so heavily burdened with debt that weak demand during the upcoming holiday season will threaten to sink some carriers. Japan Air has already announced nearly 7,000 layoffs and the Asia carrier is looking for a cash infusion from AirFrance-KLM or a major US carrier–perhaps American Airlines (AMR).
The financial situation in the North American market is particularly acute. The IATA is expecting losses in the region to be $2.6 billion rather than the $1 billion it previously forecast. Wall St. has shown its concern about the weakest carriers by pushing the shares of US Air (LCC) down 40% this year and the shares of American (AMR) down more than 30%.
Filing for Chapter 11 is a time-honored tradition in the US airline industry. It allows carriers to cut debt and force union concessions on jobs and pay. With Thanksgiving and Christmas coming, unless there is a miraculous turn up in traffic, one or more carriers will lose their independence or will have to seek court protection.
Douglas A. McIntyre
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