GENEVA (TVLW) – The airline industry body IATA slashed its forecast for industry profits in 2008 on Wednesday, warning that the spiraling cost of fuel and the impact of the credit crunch would reverse expected growth.
The International Air Transport Association (IATA) reduced its forecast for 2008 industry profits by one third to $5 billion as oil prices approach $100 a barrel.
In September, it had forecast $7.8 billion in profits next year but that was based on oil at just $70 a barrel.
“A favorable economic environment and effective efficiency measures helped mitigate the impact of high fuel prices and underpinned stability improvements. With the credit crunch, that is changing,” IATA Director General Giovanni Bisignani told a briefing in Geneva.
“The peak of the business cycle is over, and we are still $190 billion in debt. So we could be heading for a downturn with little cash in the bank to cushion the fall,” he said.
Yet IATA chief economist Brian Pearce added: “This is a blip rather than a recession.”
The industry body confirmed its forecast for industry profits in the current year of $5.6 billion.
International carriers, especially in Europe, had been concerned about U.S. credit market turmoil because of the potential impact this would have on financing conditions and corporate travel.
Premium travelers, usually business customers, account for 25 percent of traffic aboard the top five European airlines on transatlantic flights, compared with 15 percent for the leading U.S. carriers, according to IATA data.
The industry body said that North American carriers would see the largest profitability squeeze in 2008, while European and Asian airlines would experience more minor profit declines.
Overall, it estimated that high energy prices would add $14 billion to the industry’s fuel bill in 2008, driving it up to $149 billion.
IATA represents 280 airlines, covering 95 percent of international air traffic.