The Sky Is Falling. Seriously.

Want to know how bad it is in the airline industry? Consider this: commercial aviation took a well-known beating after the September 11, 2001, terrorist attacks, but it wasn't anything like the pain the airlines are feeling today. For 2009, revenues are expected to fall $62 billion, or 12 percent (after 9/11, revenues dropped $23 billion, about 7 percent).

"This crisis is resizing and reshaping the industry ... Our loss forecast for 2009 is now US$4.7 billion. Combined with an industry debt of US$170 billion, the pressure on the industry balance sheet is extreme," Giovanni Bisignani, executive director of the International Air Transport Association, said today as the group released its latest global business assessment.

Two big factors are contributing to the industry's woes. Premium travel, those passengers paying thousands to fly in first or business classes, fell 16.7 percent in January. And cargo traffic, another profit center, dropped 23.2 percent.

Hardest hit are the Asia Pacific carriers, which are forecast to post losses of $1.7 billion this year (previous estimates said they have losses of around $1.1 billion). European carriers are expected to lost $1 billion, while Middle Eastern carriers--the only region with growing demand for traffic, although not as big as in past years and below the growth in capacity--are seen as losing $900 million.

The one, somewhat, bright spot in all of this? The outlook for US carriers, which took major steps last year to reduce capacity when oil reached record levels. With oil prices way down from their highs and with leaner operations today, the nation's airlines are seen as pulling in $100 million in profit this year.

"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.

Last week, Seat 2B columnist Joe Brancatelli zeroed in on the industry's woes as he highlighted the problem of fewer premium class passengers. "Most worrisome for airlines, however, is the historical reality: Every financial downturn has led to a permanent decline in the number of up-front fliers," he wrote.

by J. Jennings Moss