Tough Year Ahead for World's Airlines

Exacerbating airline industry woe, the International Air Transport Association (IATA) downgraded its industry-wide profit expectations for 2008 to $4.5 billion. This, says IATA, is the second downgrading of its 2008 forecast.

"We still expect a positive bottom line of US$4.5 billion, but it's turning out to be a very tough year," said Giovanni Bisignani, IATA's director general and CEO. IATA represents 240 airlines worldwide and 94 percent of scheduled international airline traffic.

The downgrade is based on IATA's estimate of global economic growth slowing to 2.6 percent and an average annualized oil price of $86 per barrel. In September 2007, IATA predicted a $7.8 billion profit for this year. The initial impact of the credit crunch saw that lowered to $5.0 billion in December 2007.

Bisignani said that skyrocketing oil prices during 2004-2008 were offset by efficiency gains and rising consumer confidence. "The broadening impact of the U.S. credit crunch has brought buoyant consumer confidence to an abrupt end," he said. Oil prices continue to rise. Demand is softening and after the 64 percent improvement in labor productivity and an 18 percent reduction in non-fuel unit cost attained since 2001, efficiency gains are much more difficult to achieve."

Another key element are impacting industry performance, IATA says, is increased competition. The US-EU Agreement on Open Skies is increasing trans-Atlantic frequencies by 11 percent in April. London Heathrow and Spain are leading the change with an increase of 25 percent each, which will put pressure on yields in these markets. IATA also warned that the current crisis in financial markets would make airline asset sales more difficult in 2008.

IATA says all regions of the world are expected to be profitable in 2008, except for Africa. Compared to 2007, areas with strong commodity markets and strong ties to the booming economies of China, India and Latin America are, in general, doing better. By contrast, U.S. and Europe will see significant decreases in profitability. In the North American market, IATA forecasts $1.8 billion in revenues, down from $2.8 billion in 2007. Visit (GD)