IATA Remains Upbeat for 2007

A revised financial forecast for the world’s airlines have been announced by the International Air Transport Association. Globally, airlines are expected to post a $5.6 billion net profit for 2007, up from the $5.1 billion forecast in June.

The average oil price for 2007 was revised upwards to $67 per barrel (previously $63). However, higher oil prices were 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,” said Mr. Bisignani.

Underlying the forecast is a substantial shift in relative regional performance, primarily driven by capacity increases. Since 2001, Asia-Pacific based carriers, preparing to serve the massive opportunities in China and India, added 42 percent to their capacity and improved load factors by 2 percentage points.

By contrast, North American carriers have added 11 percent to capacity and improved load factors by 6 percentage points. European carriers expanded capacity 29 percent with load factors showing a 5 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 buoyant long-haul markets, improving profitability continually from US$1.6 billion in 2005 to an expected US$2.1 billion this year.