IATA Forecasts Airline Profits To Slip Next Year

The global airline sector is on pace to earn $5.6 billion this year, but profits are expected to fall to $5 billion in 2008, according to a forecast released today by the International Air Transport Association.

IATA is scaling back to $5 billion an initially more hopeful $7.8 billion target in profits next year, as fuel price hikes and the "broadening impact of the credit crunch" are expected to limit traffic and revenue growth and minimize profits.

Though mounting jet fuel prices have eaten into profits this year, high passenger growth and an overall 8.4 percent surge in revenue have helped to offset the airline industry's largest expense.

IATA said North American carriers led in "absolute profitability" this year, but those carriers "will see the largest fall in profitability from $2.7 billion in 2007 to $2.2 billion in 2008." Among damaging factors, IATA said 35 percent of the fleet in North America is more than 25 years old, heightening the impact of fuel prices. European and Asian carriers next year are expected to see only minor drops in profitability, as Middle Eastern carriers are expected to "remain stable." Latin America holds the only airline sector targeting 2008 profit growth, which will enable it to financially break even.

IATA director general and CEO Giovanni Bisignani warned that world airlines "could be heading for a downturn," while declaring that "the peak of the business cycle is over."

"For the first time since 2000, we are profitable," Bisignani said. "That is good news, representing a lot of hard work by airlines. Since 2001, non-fuel unit costs dropped 16 percent, labor productivity is up 64 percent and sales and marketing unit costs decreased 25 percent, but with a 1.1 percent margin, the bottom line is still peanuts."