Bucking Bar

By Tim Hepher and Robert Evans

GENEVA (Reuters) - Airlines worldwide face over $8 billion in losses next year if Europe's politicians fail to get to grips with the region's debt crisis, the industry's leading trade group warned on Wednesday.

A collapse of efforts to shore up the euro and prevent a new shock to the global banking system would hit air transport across the globe and cripple the Asian profit machine which has led the industry's recovery since 2009, Geneva-based IATA said.

"The biggest risk facing airline profitability over the next year is the economic turmoil that would result from a failure of governments to resolve the euro zone sovereign debt crisis," said Tony Tyler, Director General of the International Air Transport Association.

"Such an outcome could lead to losses of over $8 billion, the largest since the 2008 financial crisis," he added.

Even in the best-case scenario, Europe's airlines face losses in 2012 and the gap between the industry's haves and have-nots is expected to widen.

Asian carriers are seen soaking up new demand and North American airlines should gain as capacity cuts allow them to raise prices, but European airlines will lose out -- especially in a worst case scenario for the euro.

IATA, which represents 240 of the best-known airlines carrying 84 percent of global traffic, cut its central forecast for 2012 industry profits to $3.5 billion from $4.9 billion.

Its 2011 profit outlook was unchanged at $6.9 billion.

Until now, aviation has been relatively optimistic about its prospects as Europe teeters on the edge of recession, with rising demand in Asia and capacity restraint in North America seen boosting profits and driving talk of a two-speed market.

tsquare

75% of all statistics are made up on the spot. And.. you can prove ANY argument with statistics.

georgetg

I also agree.

Historically the big problem of the US airlines has been a revenue problem.
In the past, high yield fares offset what is now considered a high cost structure.

With the historic yield and revenue streams gone, most US carriers started accruing debt. As a result most US airlines have pretty substantial debt positions. It is the servicing of that debt that has required an increasing larger share of the revenue stream.

Delta is approaching both angles. Paying down debt has reduced the cost of servicing that debt. Creating new revenue streams has helped supplement the depressed revenue from ticket sales...

AMR was burning through cash in excess of $300M/month.
With a dwindling supply of cash on hand, There was no way to solve that problem either through revenue of debt position improvements.

I feel bad for our brothers at AA. I disagree with the position that the pilot contract had much bearing on the filing, one way or another.

Cheers
George

TenYearsGone

Devil's Advocate: Gol pays their pilots very low. In my own little mind, I always worried about this scenario in many dimensions. Maybe I worry about our future becoming much like the "cruise/shipping" industry. IMHO, GOL is a threat to us because they can do our flying for less labor costs.

TEN

georgetg

We do.

Our capacity constraint strategy is playing with fire. It could work out and pay off or we could create an environment that lets others grow. No matter what. capacity reductions will increase our CASM going forward.

I'm sure we'll be very familiar with that slide by year's end...

Cheers
George

georgetg

Bingo.

JVs and Codeshare with foreign airlines are the biggest threat going forward.
For now cabotage is protecting us domestically.

Going forward we'll need to use the cabotage cover wisely and reduce our domestic codeshare while pushing for nothing less than production balance with annual remedies on all JVs.

Cheers
George

tsquare

I think the point is that we cannot do their flying. We cannot fly internally in Brazil (unfortunately) because of cabotage. (I am only saying unfortunately because it would be nice to be able to spend a few days there flying around..) GRU-GIG-GRU-GIG... how fun would THAT be? I digress.. this is seemingly a good codeshare because now we can connect the 20 passengers we have from New York (us) to Belo Horizonte (GOL). Now the question might be this: Are we protected if GOL flies from GRU to another country, are they then taking our widebody flying that we could have been doing from the US to (wherever)? Then again, this is no different than AF or KLM taking our pax from CDG/AMS to points beyond... scope?

FlyZ

That was my point. Look how many European destinations we have dropped because pax can connect through AMS or CDG. This seems like a play to allow the same thing in SA.

georgetg

@TenYersGone @tsquare you should like this:

Flying with Delta pilots is worth an extra $200!



gotta love it!

Cheers
George

johnso29

Conversion/projected training list is now available on deltanet.