Air Industry Profits to Decline in 2008

“For the first time since 2000, we are profitable,” says Giovanni Bisignani, IATA’s director general and CEO. “That is good news, representing a lot of hard work by airlines. Since 2001, non-fuel unit costs dropped 16%, labor productivity is up 64% and sales and marketing unit costs decreased 25%. But with a 1.1% margin, the bottom line is still peanuts.”

IATA had previously forecast carrier profits at $7.8 billion. That estimate was before fuel prices began their steep climb. In fact, based on most recent costs of fuel touching $100 a barrel, the prediction of an added $14 billion just for fuel might mean that profits may be even smaller.

The Association feels the credit crunch will slow revenue growth to 4.7% and traffic growth to 4.0%. It foresees capacity expansion to accelerate in 2008 with an increase in aircraft deliveries to 1,281 (up from 1,041 in 2007).

“The challenges get tougher in 2008,” continues Bisignani. “A favorable economic environment and effective efficiency measures helped mitigate the impact of high fuel prices and underpinned profitability improvements. With the credit crunch, that is changing. The peak of the business cycle is over and we are still $190 billion in debt. So we could be heading for a downturn with little cash in the bank to cushion the fall.” Here, by region, are IATA predictions for 2008:

“* While leading in absolute profitability in both 2007 and 2008, North American carriers will see the largest fall in profitability from $2.7 billion in 2007 to $2.2 billion in 2008. With 35% of the fleet over 25 years old, the impact of high fuel prices is greater than in other regions. Moreover, the region is at the center of the credit crunch.

* European and Asian carriers will see minor drops in profitability of $100 million each to $2.0 billion and $600 million respectively. Robust traffic growth to and within Asia is expected to partially insulate carriers from the impact of the crunch.

* Middle East will remain stable at $200 million, supported by ambitious route expansion.

* Latin America is the only region to see profitability improve by $100 million to break even in 2008. This is largely the result of industry re-structuring.

* Africa will be the only region reporting a loss—stable at losses of $100 million last year and this.”

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