IATA downgrades profit outlook for the second time in 2008 to $4.5bn

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The International Air Transport Association (IATA) has downgraded its industry profit expectations for 2008 for the second time, to $4.5 billion (Dh16.5bn) due to the slowdown in global economic growth.

The news comes one day after IATA announced a drop in the global passenger load factor (PLF) to 73.3 per cent in February compared to February 2007, owing to the growing impact of the US economic slowdown on the airline industry.


The Middle East aviation industry will, however, remain stable with profits in 2008 resting at $200 million (Dh734m), even though down from $300m in 2007, according to IATA’s top executive.

he Geneva-based aviation trade body first downgraded its profit forecast for 2008 in December last year, to $5bn, which was still 10.7 per cent lower than 2007’s expected earnings.

IATA had originally (in September 2007) estimated a profit of $7.8bn for 2008, which took a hit owing to the initial impact of the global credit crunch.


“The second downgrade is based on the global economic growth slowing to 2.6 per cent and an average annualised oil price of $86 per barrel [Brent Crude],” IATA said in a statement.


“The Middle East is able to sustain profitability levels as the region is supported by ambitious route expansion,” Giovanni Bisignani, IATA’s Director-General and Chief Executive Officer, had recently told Emirates Business.

“We will also see the region’s capacity levels, which rest at 3.5 per cent at present, go up to about six per cent in the next five years. Capacity is driving revenues and profitability.”


IATA also expects the Middle East to continue to be the fastest growing region in 2008. “It is starting from a small level so the absolute numbers are still low, but it is still able to achieve the highest growth levels in the world,” said Brian Pearce, IATA’s chief economist.


While the region’s average annual growth rate of passenger traffic is expected to be 6.8 per cent from 2007 to 2011, the cargo operations are expected to grow at five per cent.


“The Middle East, developing economies in Asia and, to a lesser extent, Africa will be boosted by strong GDP [gross domestic product] growth, along with significant new capacity and new routes,” said Bisignani.


He added that even though IATA expects an overall positive bottom line of $4.5bn, it is turning out to be a very tough year.  With regards to regional profitability, IATA said that all regions are expected to be profitable in 2008, except for Africa.
 
“Compared to 2007, areas with strong commodity markets and strong ties to the booming economies of China, India and Latin America are in general doing better,” according to IATA.


“By contrast, the US and Europe will see significant decreases in profitability,” the aviation trade body said in the statement


“At an average annual price of $86 per barrel for Brent, fuel represents 32 per cent of operating costs and a total bill of $156bn.
 
Along with the global credit crunch and oil prices, three other key elements are impacting the performance of the industry – aircraft delivery cycle, increased competition and non-core assets,” said Bisignani.


For aircraft deliveries, the downturn in demand coincides with a stepping-up of aircraft deliveries – from 1,041 new aircraft in 2007 to an expected 1,231 in 2008, according to IATA.

While some of this will be offset by retiring less fuel-efficient aircraft, real yields (adjusted for inflation and the US dollar) are expected to drop 4.1 per cent this year (compared to a 3.2 per cent drop in 2007).


The crisis in the financial markets, meanwhile, will make asset sales more difficult in 2008, said IATA.

 
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