Airline Economics Could Be Turning Corner

"While we are far from being out of the woods, we are poised to turn the corner," said John Heimlich, the Air Transport Association's vice president and chief economist, in ATAs annual State of the Industry assessment released Thursday. "Industry fundamentals finally have improved, and if fuel prices moderate, we could be seeing record profitability rather than multibillion-dollar losses." However, Heimlich said revenue is $25 billion per year lower than what it should be. Fares are not keeping pace with fuel cost increases. Year-end 2005 figures show the mainline operating fleet is 20 percent smaller than on June 30, 2001. Work rule changes have improved labor productivity by 30 percent, cuts of more than 130,000 jobs—a 37 percent reduction—have helped profitability, and fuel efficiency is up 18 percent since 2000. International markets remain very strong. ATA says the industry will likely post $1 billion to $2 billion in net losses for 2006, followed by an industry-wide profit in 2007. Heimlich said: "It will take years of meaningful profit margins to pay off the incremental debt the industry has accumulated since 2000, but for the first time in many years, things are indeed looking up."

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