Airline group cuts profit expectations for region

PUBLISHED : Friday, 24 March, 2006, 12:00am
UPDATED : Friday, 24 March, 2006, 12:00am

The International Air Transport Association (Iata) slashed its forecast for industry losses for the second time in three months yesterday, but a poor string of recent results from Asian carriers prompted it to reduce profit expectations for the region by US$900 million.

Iata predicted global airlines would lose US$4.6 billion this year, down from the US$7.2 billion it forecast in December.

In contrast to a new era of 'cautious optimism', Iata reduced its expectations for Asian carriers' earnings by 45 per cent to US$2 billion while maintaining the region would remain the most profitable.

'There is a new optimism emerging in the industry,' Iata director general Giovanni Bisignani said.

'Improved economic prospects in Europe and Asia combined with an improving situation in the United States will lead to reduced losses [this year] and strengthened profitability in 2007.'

Iata expects the industry to earn US$7.2 billion next year.

Cathay Pacific this month was the latest in a series of Asian carriers to post earnings below market expectations, revealing a profit shortfall of 25.3 per cent compared with last year. Airlines in Korea, Thailand and Malaysia also disappointed and two of China's big three carriers have issued profit warnings.

Jet fuel prices have been edging marginally lower since the beginning of the year, hovering at US$75 a barrel for the past three months.

Most of Iata's newfound optimism appears to be stemming from expectations that a realignment of capacity in the US as carriers enter and exit Chapter 11 bankruptcy protection will reduce the massive losses there.

'Restructuring in the US industry has produced some impressive results, including a 34 per cent increase in productivity,' Mr Bisignani said. 'Nevertheless, at 33 per cent of operating costs, US labour costs are higher than their competitors in Europe and Asia. More work needs to be done.'

Iata said domestic capacity in the US had been reduced by 3 per cent in the 13 months to January, while capacity on international routes grew 8.4 per cent last year.