The OECD’s last economic outlook carried a risk assessment on the European sovereign debt crisis, which caused IATA to develop a second scenario for 2012 taking into account the possibility of the Eurozone crisis deteriorating into a renewed banking crisis. Based on the OECD’s view that this scenario would cut global GDP growth to 0.8%, IATA estimates that this has the potential to cause global industry losses of $8.3 billion.
In this scenario, all regions would fall into losses. Europe would be expected to post the deepest losses at $4.4 billion, followed by North America at $1.8 billion and Asia-Pacific at $1.1 billion. The Middle East and Latin America would both be expected to post $400 million losses, while Africa would be $200 million in the red.
“This admittedly worst-case—but by no means unimaginable—scenario should serve as a wake-up call to governments around the world. In a good year, the airline industry does not cover its cost of capital, much less in a bad one. But in a bad year, aviation’s ability to deliver connectivity and keep the heart of the global economy pumping becomes even more vital to initiating a recovery. Government policies need to recognize aviation’s vital contribution to the health of the economy,” Tyler said.
This scenario is based on global GDP growth falling to 0.8% in 2012 driven by Europe descending into deep recession. Historically, GDP growth rates below 2.0% have resulted in the airline industry producing a net global loss. In this scenario, airlines would see growth in passenger demand grind to a halt and a 4.7% contraction in cargo markets. Both passenger and cargo yields would fall by 1.5%.
Some relief in the fuel price would be expected. Based on oil at $85 per barrel, the fuel bill would be $183 billion and consume 31% of costs. However, overall expenses would be expected to grow by 1.9% (compared to 2011) to $592 billion. Revenues would see a fall of 1.3% (compared to 2011) to $589 billion. The net result would be an $8.3 billion loss and net margin of minus 1.4%.