Gloom Lifts as IATA Slashes Airline Forecast Loss

THE International Air Transport Association has unexpectedly halved its estimate of the amount of money global airlines will lose this year.

IATA began this year with a pessimistic prediction that the industry would lose $US4.3 billion ($6 billion) before turning a $US6.2 billion profit next year. But in an amended forecast delivered this week to the Wings Club in New York, IATA director-general Giovanni Bisignani revised this to a $US2.2 billion loss this year and bigger profit of $US7.2 billion in 2007.

Mr Bisignani attributed the revision to better economic prospects in Europe and Asia combined with an improving situation in the US.

He noted there was ''a new cautious optimism'' with 70 per cent of airline chief financial officers responding to a new confidence survey expecting improvements in profitability over the next year.

This was based on efficiency gains averaging 4 per cent a year and market growth of about 6 per cent. But, he warned: ''While the trend is positive, we are nowhere near sustainability.

''A profit of $US7.2 billion is only a 3 per cent return on capital invested.

''Improved cost efficiency should be at the top of the agenda for everyone. Governments must get out of the way of a hyper-competitive airline industry on commercial issues and take a closer look at the efficiency of airport monopolies.''

The revised forecast bets crude oil rices will drop, with Brent crude averaging $US57 a barrel this year and $US52 next year. But, he warned, oil remained the single biggest challenge to airline profitability. He said the industry's fuel bill went up from $US44 billion in 2003 to $US92 billion last year.

''Instead of expanding refinery capacity, the oil companies plan to return a quarter of a trillion dollars to investors over the next two years,'' he said. ''Airlines alone have contributed a $US14 billion to this windfall profit.

''It is time that governments stepped in to encourage investment in new refinery capacity along with research into alternative fuel sources.''

Asia-Pacific carriers are still expected to post the biggest absolute profits in the industry this year at $US2 billion, down from $US2.9 billion last year.

US carriers are expected to lose $US5.4 billion -- about half the 2005 loss -- while the Europeans make about $US1.4 billion.

He also had some harsh words for governments on taxation and security. He said airlines were paying $US5.6 billion a year for additional security but passengers were still being hassled. And rising taxes had made air travel more expensive.

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