GENEVA (Reuters) - The International Air Transport Association (IATA) on Tuesday cut its profit forecast for the airline industry for the second time in four months due to rising oil prices and deepening global economic gloom.
By Stephanie Nebehay
GENEVA (Reuters) - The International Air Transport Association (IATA) on Tuesday cut its profit forecast for the airline industry for the second time in four months due to rising oil prices and deepening global economic gloom.
"We still expect a positive bottom line of $4.5 billion, but it's turning out to be a very tough year," IATA Director General Giovanni Bisignani said in a statement.
Soaring fuel costs and economic disquiet from the credit crunch have softened demand and hurt "an industry that is constantly on the verge of intensive care," Bisignani said.
!ADVERTISEMENT!In December, IATA lowered its 2008 profit forecast to $5 billion. The Geneva-based industry body had initially predicted $7.8 billion profits for this year.
The latest outlook was based on an average annual price of $86 per barrel of Brent crude oil <LCOc1>, which traded above $100/bbl on London markets on Tuesday.
At $86/bbl fuel accounts for 32 percent of airlines' operating costs and a total bill of $156 billion for the industry, according to IATA.
"With fuel costs rising, the U.S. market in recession and competition intensifying, the only way to limit the damage to profitability will be to take out capacity or squeeze out further efficiency gains," it said.
The possibility of further oil price increases and other economic woes meant that risks to the $4.5 billion forecast were "clearly on the downside," IATA said.
Airlines, which posted an estimated $5.6 billion profit last year, already run lean operations and have made improvements in areas including labor productivity. IATA said more efficiency gains would be "challenging, but nonetheless critical."
U.S. airlines, deemed most exposed to the current economic risks, could see profits of $1.8 billion, down from $2.8 billion in 2007, IATA said.
"This could easily turn into a net loss should the current economic environment deteriorate further," it warned.
European and Asian airlines have seen the weak U.S. dollar offset part of the rise in fuel prices, according to IATA.
Stronger economies in Asia should provide some support for revenues and profitability, but competition from new aircraft and services will intensify in both regions, it said.
Africa is the only region expected not to post profits in 2008.
IATA represents some 240 airlines accounting for 94 percent of all scheduled international air traffic.
(Additional reporting by Sven Egenter in Zurich, Editing by Laura MacInnis/Will Waterman)
