Key Points:

Half of all airlines expect to be hit with falling profits over the next year.

An International Air Transport Association survey of its members show profitability remained weak at the end of last year and expectations for this year are pessimistic.

The outlook for the next 12 months is slightly worse than that reported in an October survey with only a quarter of respondents expecting to see profits rising over the next year, whereas half expect a further decline.

Airlines operating in Asia are the most negative but those in the Middle East are still expecting an improvement in profitability on balance.

Delta Air Lines, the world's biggest airline after taking over rival Northwest Airlines last year, said yesterday it expects a 10 per cent decline in industry revenue in 2009 as the economic slowdown hits travel demand.

IATA said the impact of financial market turmoil and resulting recessionary forces is beginning to be felt while the full effect of the rapid decline in fuel prices has yet to benefit many airlines given their hedging activity.

While jet fuel prices ended the year at roughly a third of their record highs of over US$180 ($336) per barrel in July last year, many airlines are stranded on fuel supply contracts above what is now a lower spot price.

This meant 62.5 per cent of respondents still reported higher input costs for the closing months of last year, although this was down significantly from the 81 per cent in the last survey.

Expectations for growth in traffic volumes continued to fall sharply. Recession-led demand weakness drove the volume declines experienced by half the respondents to the end of 2008, while only a quarter expect passenger demand growth in 2009.

The survey is consistent with the latest Air New Zealand operating figures which showed in November the airline carried 957,000 passengers, down 5.7 per cent on the same month last year. Worldwide air cargo demand has continued its rapid slide as manufacturing activity and trade flows slow, IATA says.

Seventy per cent of airlines expect further falls in cargo demand.

Air New Zealand announced last month it will withdraw its Boeing 747 freighter service from the end of March.

The freighter operates twice a week from Auckland to a number of international markets including Australia, China, Germany and the US and contributes about a third of cargo revenue.

The airline said large international customers particularly in Asia and Europe has been unable to commit to forward bookings because of market uncertainties and therefore the service had become unviable.

IATA found jobs were still being created late in 2008 but were set to stabilise or fall slightly as further recession impacts are felt this year.