Global airline industry to return to profitability in 2007

SINGAPORE – Airlines should return to the black this year with US$3,8 billion in profits after six years of losses totalling more than US$40 billion, the top industry association said yesterday.

The International Air Transport Association (IATA) sharply raised its 2007 profit forecast for the world’s airlines from US$2,5 billion previously as carriers fill more of their available seats. The higher estimate can be achieved despite an expected slowdown in the US economy and oil prices staying at more than US$60 a barrel, it said.Net profit could then increase to US$7,6 billion in 2008 on faster US growth and expected lower fuel costs, IATA said in a report alongside a speech by IATA director-general Giovanni Bisignani in Singapore.”After six years and over US$40 billion in losses, this year will see the industry return to profitability,” Bisignani told airline executives.”In fact, today we are raising our profit outlook for 2007 to US$3,8 billion,” he said, adding however “there is a lot of hard work still ahead.”The IATA report also cautioned that despite improving profits, “the industry remains vulnerable to the kind of shocks that hit demand and costs in the past six years.”Returns on capital remain below the average of the late 1990s, airline balance sheets “remain fragile” and companies “have not been able to use the strength of revenues to build up a cash cushion against shocks,” IATA warned.”Although no economic recession is expected, the airline industry is moving into a period of slower revenue growth over the next two years,” it said, putting revenue growth at five per cent this year and next, half the 10 per cent rate posted since 2004.In his speech, Bisignani called on Asia Pacific airlines to take a leadership role in shaping the global industry by initiating reforms aimed at increasing efficiency and reducing costs.By 2010, Asia will be the biggest market in the world, with the region home to some of the biggest industry players such as Singapore Airlines, Cathay Pacific and Qantas, he noted.One area in which Asia can lead is in liberalisation, through an open skies policy, he said, criticising Europe and the United States for a failure of leadership.”Don’t import the policy mistakes of Europe and the US.Asian governments must have a plan for liberalisation that is more than just a reaction to what it going on across the Atlantic,” he said.While there are plans to liberalise the industry in Asia and some bileratal open skies agreements have been signed, a gradual approach is inadequate as the business is changing rapidly, he said, urging the region to “start thinking much bigger and much faster.”Nampa-AFPThe higher estimate can be achieved despite an expected slowdown in the US economy and oil prices staying at more than US$60 a barrel, it said.Net profit could then increase to US$7,6 billion in 2008 on faster US growth and expected lower fuel costs, IATA said in a report alongside a speech by IATA director-general Giovanni Bisignani in Singapore.”After six years and over US$40 billion in losses, this year will see the industry return to profitability,” Bisignani told airline executives.”In fact, today we are raising our profit outlook for 2007 to US$3,8 billion,” he said, adding however “there is a lot of hard work still ahead.”The IATA report also cautioned that despite improving profits, “the industry remains vulnerable to the kind of shocks that hit demand and costs in the past six years.”Returns on capital remain below the average of the late 1990s, airline balance sheets “remain fragile” and companies “have not been able to use the strength of revenues to build up a cash cushion against shocks,” IATA warned.”Although no economic recession is expected, the airline industry is moving into a period of slower revenue growth over the next two years,” it said, putting revenue growth at five per cent this year and next, half the 10 per cent rate posted since 2004.In his speech, Bisignani called on Asia Pacific airlines to take a leadership role in shaping the global industry by initiating reforms aimed at increasing efficiency and reducing costs.By 2010, Asia will be the biggest market in the world, with the region home to some of the biggest industry players such as Singapore Airlines, Cathay Pacific and Qantas, he noted.One area in which Asia can lead is in liberalisation, through an open skies policy, he said, criticising Europe and the United States for a failure of leadership.”Don’t import the policy mistakes of Europe and the US.Asian governments must have a plan for liberalisation that is more than just a reaction to what it going on across the Atlantic,” he said.While there are plans to liberalise the industry in Asia and some bileratal open skies agreements have been signed, a gradual approach is inadequate as the business is changing rapidly, he said, urging the region to “start thinking much bigger and much faster.”Nampa-AFP