Credit crunch clouds aviation

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THE GLOBAL airline industry is being hit by financial turmoil in US and Europe, according to the International Air Transport Association (IATA).

"Airlines worldwide are facing the toughest business conditions ever, with more carriers folding in recent months than in the aftermath of the September 11 attacks in 2001 or the SARS outbreak in 2003," explained the IATA report.

In addition to high oil prices, IATA says airlines around the world are facing new challenges which would send the global industry into what it calls the "perfect storm".

Asia has been the one of the fastest growing regions in air travel in recent years. But now there are signs that the financial turmoil in the United States and Europe is starting to hurt that growth.

Giovanni Bisignani, Director General and CEO of IATA, said in Singapore: "We always thought that the credit crunch was affecting the US and Europe, and this has been true. But we were quite surprised in seeing that the domestic market in China, that used to grow at 20-25 per cent, this year will grow at 7-8 per cent. And if we look at the latest traffic figures in July, Asia did not grow. It went down."

The IATA expects traffic volume growth across Asia to fall to 3.3 per cent this year, down from the 6.8 per cent clip seen in 2007. IATA is also forecasting that the global airline industry will fly into US$5.2 billion in losses this year, and continue to operate at a loss of US$4.1 billion in 2009.

Despite the recent drop in oil prices, airlines are now facing new pressures of falling air travel demand. This, according to IATA boss, is likely to cause further consolidation within the industry. "This emergency situation is a good opportunity for governments to understand that we need the freedom to run our business as a normal business. Governments must understand that the flags on the tails of the planes are killing the industry," Bisignani added.

In order for the global airline industry to survive this storm, IATA says governments should further relax foreign ownership rules, and allow industry players to create more open skies agreements.

The global financial crisis forced US aircraft manufacturer, Boeing to delay deliveries of aircrafts. Although Boeing has a record backlog of orders and had been raising production rates to get more planes to customers, the credit crunch will result in many of those orders being canceled or deferred.

An analyst predicted that because of the ongoing machinists strike and other factors, the first 787s won't be delivered to airlines until early 2010, rather than in the third quarter of next year.