IATA slashes profits outlook for airlines as fuel price and credit crisis hit

(13.12.2007     Times)

The airline industry has cut its forecast for profits next year by a third as
soaring fuel costs and the credit crunch begin to take their toll.   The International
Air Transport Association (IATA) predicted that the global aviation business would
make profits of $5 billion ( £2.4 billion) in 2008, compared with a previous forecast
of $7.8 billion.   The greatest burden on airlines next year will be fuel prices
with the spike in charges set to add $14 billion to the industry fuel bill, to
$149 billion, based on an average price of $78 per barrel.

The impact of the credit crunch is also expected to lead to slower revenue and
traffic growth. The delivery of new, bigger aircraft will make the problem worse,
with a greater numbers of seats competing for a smaller number of passengers.

Giovanni Bisignani, the IATA director-general, said: "The challenges get tougher
in 2008. ….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."

The global industry is set to make profits of $5.6 billion this year.

North American carriers are expected to see the largest fall in profitability,
partly because they have the oldest and, therefore, least fuel-efficient aircraft.
The region is also at the centre of the credit crisis, with implications for business

British Airways poured cold water on the IATA predictions and their potential
impact on its lucrative transatlantic market, saying that it was experiencing
no slowdown in traffic in the final months of the year and was confident for the
year ahead.   November traffic figures released by BA last week show …there is
some indication that business-class passengers are choosing to travel in economy
for short-haul trips.

European carriers have been particularly concerned about the impact of the credit
crunch. Premium travellers, usually business customers, account for 25% of traffic
for the top 5 European airlines on transatlantic flights, compared with 15% for
the leading American carriers.

MaxJet, the Stansted-based business class-only airline, suspended its shares
last Friday because of financial difficulties.