[EN-AIR] IATA : Airlines Still Under Cashflow Pressures

Capital markets have opened up but access is still restricted to major carriers

By VEN SREENIVASAN - IN GENEVA

THE airline industry is still under cashflow pressure. But having raised some US$25 billion, of which US$20.2 billion is debt, it has a comfortable cash cushion. Airlines raised another US$11 billion by selling planes and assets.

Capital markets have opened up but access remains largely restricted to major carriers, Brian Pearce, chief economist of the International Air Transport Association (IATA), said yesterday.

'Despite having raised capital, banks are not still not in comfortable reserve ratios,' he said. This means credit will remain tight while smaller regional airlines will continue to find it difficult to access capital markets.

But Mr Pearce sees potential for export credit agencies and new lenders from Asia, especially China, to fill the gap.

Speaking at an international media briefing in Geneva, Switzerland, on the state of the airline industry, he said rising fuel prices remain a threat to cashflows.

A combination of low yields and rising fuel costs will force airlines to cut other unit costs, primarily labour. 'Airlines need to reduce unit costs,' he said.

In its latest forecast, Iata said the global airline industry is seeing a recovery in operating numbers but this is uneven and weak in the major markets of the US and Europe.

Despite a recovery in passenger and cargo numbers, airlines continue to struggle with low yields.

The quantum of passenger and cargo traffic recovered is only half of that lost since last year. The biggest growth has been in developing markets.

However, the developed markets such as Europe, which are still struggling, remain the largest markets. And this has serious implications for major carriers, many of which serve these developed markets.

Mr Pearce said one risk to recovery is high consumer debt. 'In the US, it is 130 per cent of income. Meanwhile, housing and asset prices remain some 20 per cent below peaks,' he said. 'So consumers will have less money for travel.'

After airlines lost US$80 billion of revenue in 2009, IATA projects a revenue loss of US$50 billion in 2010.

Fleet size started to grow early this year, with new aircraft delivered at the rate of 100 a month. But cuts in seating and schedules have pushed load factors up.

Despite signs of improvement, the next 12 months will be challenging, he said. European airlines are expected to lose US$2.5 billion in 2010, while US carriers will lose US$2 billion.

Asia-Pacific carriers will cut their losses to US$700 million.

Source : Business Times, 16.12.09.