Airline profits looking good for 2007

IN ITS latest forecast, the International Air Transport Association (Iata) has made an upward revision of global airline profits for the year. It expects airlines to post a US$5.6-billion (R39.76-bn) net profit for 2007, up from the US$5.1-bn (R36.21-bn) it forecast in June. And, although Iata’s calculation for the average oil price for 2007 was revised upwards to R475.70 per barrel (previously R447.30), it suggested that these higher oil prices were more than offset by stronger than expected demand for passenger traffic and a general improvement in airline financial performance. But current adverse factors indicate that 2008 will still prove a tough year. “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 CEO, Giovanni Bisignani. He estimated the industry net profit for 2008 to be R55.38-bn, down from the R68.16-bn 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 Bisignani. Underlying the association’s 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% to their capacity and improved load factors by 2%. By contrast, North American carriers added 11% to capacity and improved load factors by 6% while European carriers expanded capacity 29% with load factors showing a 5% increase. “Our partners and governments must also get more serious about efficiency and the environment," said Bisignani. "For example, the UN estimates that inefficient infrastructure and air traffic management adds 12% or R99 .4-bn to our fuel bill. And it unnecessarily adds 73-million tonnes of CO2 to the environment. This must change urgently.”