IATA is forecasting a modest industry net profit of $2.5 billion in 2007, the first year in the black since 2000.
Airlines may be a popular acquisition target right now, with private equity groups prowling for targets in the sector, and consolidation manoeuvres gathering pace in the USA, but the industry boom of the past 2-3 years is over, according to the latest forecast from IATA.
It expects airline revenue growth will slow from 8% in 2006 to just over 4% in 2007. "I am looking for a soft landing in revenue growth," says Brian Pearce, IATA's chief economist. "The point of concern is the rise in fuel prices that has eaten away at the revenue boom."
At the net level, IATA predicts that the industry will make a profit of $2.5 billion compared to a loss of $500 million in 2006, says IATA director general Giovanni Bisignani.
This is still "peanuts", he says. The easing fuel price has led IATA to revise its estimate from a $1.7 billion loss projection made in September.
Meanwhile, "operating profits are expected to stall in 2007 because the industry is entering a slower growth period", says Pearce. These will remain at around $10 billion in 2007, the same as in 2006. This gives an operating margin of 2.3%, which is still way short of a return of the 10% or more a business needs to pay its cost of capital, according to Pearce.
Traffic growth will slow once again in 2007, but not much, says Pearce. IATA is forecasting a 5% rise in passenger numbers, down from 5.6% in 2006. Cargo growth will be virtually static at 4.9%.
IATA believes fuel prices will fall a little in 2007, but overall fuel will remain at 26% of airline operating expenses. IATA is assuming an average per barrel price of oil of $61 in its forecast, compared to $66 in 2006. Yields, which went up industry wide by 3.5% in 2006, will be flat in 2007, says Pearce.
Source: Airline Business
