US Air Transport Assn says industry profits for 2008 likely, but Wall Street will remain cool

An US Air Transport Association (ATA) projection issued last week says that US airlines will very likely post a collective $3.5-$4.5 billion net profit in 2008. This would not only mark the US aviation industry's third consecutive profitable year, (excluding bankruptcy restructuring-related losses in 2006), but would also be the first time that it would record such figures since 1998-2000.

According to ATA VP and chief economist, John Heimlich, "ongoing passenger and cargo revenue strength, particularly in the international arena, will help offset a sizeable increase in fuel expenses and a modest increase in non-fuel expense, enabling the industry to post" a 2008 profit.

This apart, the picture remains far from rosy for the industry.

According to Heimlich, Wall Street continued to be sceptical, "given the industry's hallmark characteristics of high fixed costs, cyclical demand and fierce competition."

He added that the "pattern is unlikely to change anytime soon, rendering it difficult for the airlines to borrow money at reasonable rates to invest in the future. Unfortunately, of the 10 US passenger airlines currently rated by Standard & Poor's, only one enjoys investment-grade status. Consequently, renewing fleets, upgrading facilities, improving customer experience, enhancing fuel efficiency and making other prudent business investments all remain difficult, at best, at a time when the need for those investments is clear."