Airline group: Travel and cargo down sharply

The world's 230 airlines have seen passenger travel and cargo fall sharply this year, as economic conditions worsened, an industry trade group said today.

Business and leisure travel fell 5.6 percent while air freight shipments dropped 23.2 percent compared with a year earlier, the International Air Transport Association said.

Airlines are responding to the slump by trying to shrink capacity. "So far, with the exception of U.S. domestic markets, they have been unsuccessful," IATA said in its latest Airlines Financial Health Monitor report.

Separately, J.P. Morgan said in a client note last week that passenger demand "has materially weakened" and that U.S. airline revenue for February and March is expected to drop 20 percent, and be down 14 percent in 2009.

"Assuming trends stabilize but don't improve," wrote airline analysts Jamie Baker and Mark Streeter, "this outcome still results in industry operating profits in line with 2006." Among the major airlines, only American and United are not expected to be profitable in 2009, they said.

Airlines worldwide lost up to $8 billion in 2008, more than the $5 billion previously estimated, the air transport group said.

The Geneva, Switzerland-based association said airline losses were $4 billion - larger than expected - in the fourth quarter.

With job losses mounting, savings wiped out, and home prices falling, leisure travelers are reconsidering vacations and companies are slashing travel budgets.

"Airlines are now losing money at the operating level," the group said.

The largest financial losses were reported by Asian and European airlines, IATA said. Middle Eastern and Asia-Pacific airlines saw the biggest drops in passengers filling available seats.

U.S. airlines have been a little more insulated because they took steps to adjust to high fuel prices last summer by slashing capacity (seats and flights), raising fares, and creating new fees and charges that helped when the recession arrived.

Unfortunately, although falling oil prices provided some relief in recent months, many airlines had part of their fuel costs locked in to contracts, known as fuel hedges, that committed them to paying higher prices. "Hedging losses were a large part of the larger-than-expected reported fourth-quarter losses," the report said.

Airline stock prices fell 28 percent in February and 42 percent since the start of 2009, according to IATA, which represents airlines including Air Canada, British Airways, Cathay Pacific, US Airways (which carries two-thirds of passengers at Philadelphia International Airport), United and Delta.