IATA Optimistic Despite Issues

The International Air Transport Association’s (IATA) revised financial forecast predicts that the world’s airlines will post a $5.6 billion net profit for 2007, up from the $5.1 billion anticipated in June. The forecast comes as the oil price for 2007 was revised upwards to $67 per barrel from $63, but the higher oil price is more than offset by stronger than expected demand for passenger traffic and a general improvement in airline financial performance. “While we are more optimistic for 2007, the continuing high price of oil combined with turmoil in credit markets is a cause for concern in 2008,” said IATA Director General and CEO, Giovanni Bisignani. The industry net profit for 2008 is forecast at $7.8 billion, down from the $9.6 billion predicted in June. “The impact of the credit crunch puts some question marks over the industry’s performance next year and the continuing high price of fuel will become more difficult to mitigate with efficiency gains,” added Bisignani. Underlying the forecast is a substantial shift in regional performance. Since 2001, Asia-Pacific based carriers, preparing to serve the massive opportunities in China and India, added 42% to their capacity and improved load factors by two percentage points. By contrast, North American carriers have added 11% to capacity and improved load factors by six percentage points. European carriers expanded capacity 29% with load factors showing a five percentage point increase. These factors led to an increase in North American carriers’ unit revenues driving expected net profits to $2.7 billion, the highest among the major regions. Conversely, poorer yields from Asia-Pacific carriers combined with sluggishness in cargo markets saw a decline in absolute profits from $1.2 billion in 2005 to an expected $700 million in 2007. Europe’s carriers continued to benefit from long-haul markets, improving profitability continually from $1.6 billion in 2005 to an expected $2.1 billion this year.