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Airline Losses To Halve Next Year As Fuel Costs Ease

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Airline industry losses in 2009 may shrink to half this year’s level as a decline in fuel costs more than makes up for a reduction in the number of people flying.

Carriers may lose a total of $2.5 billion next year, compared with $5 billion in the current 12 months, the International Air Transport Association said today in a press briefing in Geneva, where the trade body is based.

IATA had predicted a $4.1 billion loss for airlines in 2009 as recently as Sept. 3, based on an average oil price of $110 a barrel. With crude today trading at $43.46 and the association estimating a price of $60 next year, kerosene costs have eased for those carriers, many of them in the U.S., that were hardest hit in 2008 after struggling to secure hedging positions.

“The improvement is due to an extraordinary situation for North American carriers,” IATA Chief Executive Officer Giovanni Bisignani said at the briefing. “With very little hedging, they were hit with the full impact of high fuel. To cope, they cut capacity early and are now benefiting from the full impact of low spot prices.”

The predicted loss of $5 billion for 2008 is also lower than the previous estimate of $5.2 billion, which assumed an average oil price of $113 a barrel. During the year the loss projected by IATA has ranged as high as $6.1 billion in a worst- case scenario.

Still Gloomy

Bisignani said 2009 would nevertheless be “another gloomy year.” North American carriers, likely to suffer a combined loss of $3.9 billion in 2008, will next year post a profit of about $300 million, still less than 1 percent of revenue, he said.

All other regions will be unprofitable, IATA predicts. Losses in the Asia-Pacific region will be highest at about $1.1 billion, it said, with carriers there suffering most from a decline in air-cargo shipments. European losses will widen to about $1 billion, it said.

While IATA’s loss estimates have eased, the industry group now forecasts that international traffic may decline 3 percent next year, the first drop since 2001, after earlier predicting a 2.9 percent increase.

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