Indias air travel demand to fall 7%: IATA

Written by Corporate Bureau | Mumbai | Updated: Mar 25 2009, 06:03am hrs
Theres severe turbulence over Indian skies. Poor infrastructure, slowing demand and high operating costs have hit the countrys aviation sector hard, said Giovanni Bisignani, director-general & CEO of the International Air Transport Association (IATA), in a teleconference from Geneva.

Bisignani said that India, whose market for international air services tripled in size between 2000 and 2008, is expected to see a capacity increase of just 0.7% in calendar 2009. Demand for air travel will drop by a significant 6.8% this year, he said.

IATA has also revised its outlook for the global aviation industry, with projected losses of $4.7 billion for 2009, against losses of $2.5 billion predicted earlier. The sharp drop in passenger and cargo demand is reshaping the industry with drastic change: from capacity cuts, to consolidation talks and cost reduction measures, Bisignani said.

The world over, passenger yields will decrease 4.5% on average. The situation will improve only by the beginning of 2010, he said. Demand has deteriorated far more rapidly than what was anticipated even a few months ago with the economic slowdown. Global passenger traffic is expected to contract by 5.7% over the year.

The revenue implications of this will be exaggerated by an even sharper fall in premium traffic. Cargo demand is also expected to decline by 13.0%. Both are significantly worse than the December 2008 forecast of a 3% drop in passenger demand and a 5% fall in cargo demand.

Falling fuel prices, however, are helping to cushion the large losses somewhat. With an expected crude price of around $50 a barrel, the industrys fuel bill is expected to drop to 25% of operating costs, compared with 32% in 2008 when oil averaged $99 a barrel. Combined with lower demand, total expenditure on fuel will fall to $116 billion, compared with $168 billion in 2008.

Fuel is the only good news. But the relief of lower fuel prices is overshadowed by falling demand and plummeting revenues. The industry is in intensive care. Airlines face two immediate, fundamental challenges: conserving cash and carefully matching capacity to demand, said Bisignani.

IATA finds the prospects for global airlines dependant on an economic recovery.