Airline body the International Air Transport Association’s (IATA) member carriers are forecasting a “slowdown rather than recession” in 2008, although the body had decreased its profit outlook for the year.
IATA chief economist Brian Pearce says 2007 has been a good year for airlines worldwide, with US domestic performance recovering strongly as consolidation reduces capacity, forcing up load factors by 6%.
Pearce says liberalisation in all markets would potentially have a similar effect, although he notes that the effect of rolling back regulation in the US-Europe market will be restricted by lack of capacity at Europe’s major hub airports.
While IATA is sticking to its forecast of an overall profit of $5.6 billion for 2007 - the first profit for the sector since 2000 - the spike in fuel prices and the impact of the credit crunch has prompted it to downgrade its profit forecast for next year.
It now expects an industry profit of $5 billion in 2008 compared to its earlier projection of $7.8 billion dollars for the year.
But over the next five years IATA sees the number of air travellers increasing by between 600 million and 700 million, so demand will remain robust.
Pearce says airlines can expect to be entering a period of increasing aircraft deliveries as growth slows, which he points out is a familiar pattern caused by the tendency for orders to peak as growth peaks, with deliveries taking place as the traffic rise flattens or reduces.
This will squeeze earnings, Pearce predicts, and the marketplace will become more challenging, but he remains reasonably confident that the world economy is strong enough to sustain airline growth.
IATA represents over 240 airlines, comprising 94% of scheduled international air traffic.