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Suvarnabhumi » IATA - Airlines on course to fly in to the black next year

Sunday, July 20th, 2008

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Having lost US$41 billion since 2001, the world’s airline industry is poised to reduce its loss to $500 million this year and to report its first profit since 2000 with $2.5 billion next year. The latest projection by the International Air Transport Association (IATA) for this year was much better than its previous forecast made in September when it came out with a $1.7-billion loss projection.

Barring the $6-billion cost restructuring at Delta and Northwest in the US under Chapter 11 bankruptcy proceedings, 2006 would have been a profitable year for the industry, IATA director-general Giovanni Bisignani said on Tuesday.

According to IATA’s latest projections, airlines in Europe will have the largest contribution to the 2007 profit forecast, with $1.5 billion.

Asia will show a profit of $1.2 billion, followed by the US, with $200 million,

Middle East and Latin American carriers are likely to show profit of $100 million and Africa may post a loss of $500 million.

But the head of the world’s airline group issued a caution about 2007 profit prospects, calling the $2.5 billion ”peanuts”, considering it represents a margin of merely 0.5% on $450 billion of revenue, or 2.2% earnings before interest and tax.

Furthermore, the revenue cycle has peaked. ”We forecast revenue growth to fall from 8% in 2005 to 4.5%,” Mr Bisignani said.

IATA chief economist Brian Pearce said the 2006 results were quite an achievement since oil prices are expected to average $66 a barrel, increasing the industry’s fuel bills by 23% to $112 billion this year.

Mr Bisignani warned that a significant economic downturn would hurt a fragile airline. The improvements in operating profitability look set to stall, as the airline industry would grow more slowly in 2007, Mr Pearce added.

IATA has forecast crude oil prices to remain high next year, at around $61 a barrel, from $66 this year.

A fall in the average oil price will not stop fuel bills from rising to $120 billion next year, or 26% of airlines’ operating expenses, as a result of higher capacity and the ending of profitable fuel hedges, Mr Pearce added.

Looking ahead, fuel prices may stabilise but slower economic growth will bring with it slower airline revenue growth, which will make further progress on profitability challenging without further improvements.

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