IATA revises forecast for airline losses in 2006

IATA revises forecast for airline losses in 2006    The International Air Transport Association has improved its forecast for losses in the aviation industry for 2006 to $2.2 billion from its initial prediction of a $4.3 billion deficit.
   At the same time, Geneva-based IATA said it expects airlines to post profits in 2007 of $7.2 billion. This is an improvement on its previous forecast of $6.2 billion.
   IATA’s revised forecast is based on an average oil price of $57 per barrel (Brent) in 2006 and $52 per barrel in 2007.
   “There is a new cautious optimism emerging in the industry,” said Giovanni Bisignani, IATA’s director general and chief executive officer.
   “Improved economic prospects in Europe and Asia combined with an improving situation in the U.S. will lead to reduced losses in 2006 and strengthened profitability in 2007. While the trend is positive, we are nowhere near sustainability. A profit of $7.2 billion is only a 3 percent return on capital invested. Improved cost efficiency should be at the top of the agenda for everyone in the airline industry,” Bisignani said.
   According to IATA, North American carriers will cut their losses from $10.8 billion in 2005 to $5.4 billion in 2006, thanks largely to a 3 percent reduction in domestic capacity.
   “Restructuring in the U.S. industry has produced some impressive results, including a 34 percent increase in productivity. Nonetheless, at 33 percent of operating costs U.S. labor costs are higher than their competitors in both Europe and Asia,” Bisignani said.
   Asia-Pacific’s carriers will continue to post the largest absolute profits in the industry at $2 billion, albeit down from the $2.9 billion posted in 2005, IATA said.
   “Low labor costs and strong long-haul markets is their secret,” Bisignani said.
   European carriers will follow a similar pattern with profitability reducing from $1.8 billion in 2005 to $1.4 billion in 2006. “Consolidation and strong fuel hedging programs supported profitability. The higher price of fuel will hit them harder in 2006,” he said.