GENEVA – The global airline industry is fragmented and suffers from over-capacity, the head of the industry association IATA said on Saturday, urging speedy approval of a proposed takeover of Northwest Airlines by rival Delta Air Lines.
Giovanni Bisignani, director-general of the International Air Transport Association (IATA), said the industry’s profitability remained minimal, with U.S. companies suffering most because of the downturn in the world’s biggest economy.
“Without exaggerating, the United States is in an urgent state,” he said in an interview with the Geneva daily Le Temps.
A Delta-Northwest deal would open the way to others such as a merger between Continental Airlines and UAL Corp’s United Airlines who are already in talks, he said.
Delta is offering more than $3 billion for Northwestern in a deal that would create the world’s biggest airline by traffic.
Despite cost savings such as the introduction of more economic routes and the elimination of jobs, the sector had a profit of only $5.6 billion on sales of $480 billion last year, and profit was forecast to fall this year to $4.5 billion, far below the margin of 7 percent needed to cover investments, he said.
IATA forecasts the sector’s bill for jet fuel will rise $35 billion this year to $159 billion, but that is optimistic as it is based on an oil price of $88 a barrel, he said.
U.S. crude oil futures hit a record $117 on Friday.
Bisignani said there were just too many airlines.
IATA has 260 members, accounting for 94 percent of international traffic or 2.2 billion passengers in 2007.
“But the market share of the biggest company does not exceed 5 percent. No other industry is as fragmented as that,” he said.
Over-capacity is another problem.
The industry added 1,000 new planes in 2007 and will add 1,200 more this year, while passenger numbers are expected to rise this year by 5 percent after 11 percent last year, he said.