New IATA forecasts downturn in 2008

New Delhi: The International Air Transport Association (IATA) released a new industry financial forecast estimating a global industry profit of $5.6 billion in 2007 falling to $5.0 billion in 2008.

The outlook is unchanged for 2007 at $5.6 billion. Higher oil prices (full-year average forecast of $73 per barrel) were offset by strong traffic growth (5.9 per cent for passenger traffic) and even stronger revenue growth of 8.4 per cent.

''For the first time since 2000, we are profitable. That is good news, representing a lot of hard work by airlines. Since 2001, non-fuel unit costs dropped 16 per cent, labour productivity is up 64 per cent and sales and marketing unit costs decreased 25 per cent. But with a 1.1 per cent margin, the bottom line is still peanuts,'' said Giovanni Bisignani, IATA's director general and CEO.

This is a sharp downward revision in IATA's outlook for 2008 from the previous growth forecast pf $7.8 billion. The spike in fuel prices is expected to add $14 billion to the industry fuel bill, driving it up to $149 billion (based on an average price of $78 per barrel). The broadening impact of the credit crunch is expected to slow revenue growth to 4.7 per cent and traffic growth to 4.0 per cent. Simultaneously, capacity expansion is expected to accelerate in 2008 with an increase in aircraft deliveries to 1,281 (up from 1,041 in 2007).

''The challenges get tougher in 2008. A favourable economic environment and effective efficiency measures helped mitigate the impact of high fuel prices and underpinned profitability improvements. With the credit crunch, that is changing. The peak of the business cycle is over and we are still $190 billion in debt. So we could be heading for a downturn with little cash in the bank to cushion the fall,'' said Bisignani.

  • While leading in absolute profitability in both 2007 and 2008, North American carriers will see the largest fall in profitability from $2.7 billion in 2007 to $2.2 billion in 2008. With 35 per cent of the fleet over 25 years old, the impact of high fuel prices is greater than in other regions. Moreover, the region is at the centre of the credit crunch. 
  •  European and Asian carriers will see minor drops in profitability of $100 million each to $2.0 billion and $600 million respectively. Robust traffic growth to and within Asia is expected to partially insulate carriers from the impact of the crunch. 
  •  Middle East will remain stable at $200 billion supported by ambitious route expansion. 
  •  Latin America is the only region to see profitability improve by $100 million to breakeven in 2008. This is largely the result of industry re-structuring. 
  •  Africa will be the only region reporting a loss - stable at losses at $100 million last year continuing forward.

''The common theme globally is the need for efficiency. IATA's 'simplifying the business' programme is delivering critical efficiencies from e-ticketing to e-freight. In 2008 IATA will launch three major initiatives that will cut costs and improve service,'' said Bisignani.

''We will further revolutionise the travel experience with expanded self-service options to give passengers more control over their journeys. The new strategy is built around the success of the 'common-use self-service kiosk', already operating at 83 airports around the world. Better baggage management will help mitigate the $3 billion in annual costs from the 1.8 per cent of bags that are mishandled. And the IATA safety audit for ground operations  will help reduce the $4 billion annual cost of ground damage,'' said Bisignani.