Airline Industry To Post An Improbable Profit

The IATA, the industry’s trade group that represents 220 carriers, said that the sector will post a profit this year. The exception to the move into black ink will be Europe. The agency had predicted earlier this year that airlines as a group would post a lose.

According to the IATA,  it expects airlines to post a global profit of $2.5 billion in 2010. This is a major improvement compared with IATA’s previous forecast released in March of a $2.8 billion loss. Industry revenues are forecast to be $545 billion in 2010. This is up from the $483 billion in 2009, but still below the $564 billion achieved in 2008.There are many risks in the prediction, almost all of them on the downside. The IATA numbers are based on an ongoing improvement in passenger traffic and fares as the global economy recovers. It is also based to some extent on volcanic activity well below that of April. And, it is, indirectly, based on an economic situation in Europe that is well short of a collapse.

Oil prices have been lower than expected by most analysts. Crude hovers around $70. Firms including Goldman Sachs and Morgan Stanley expected oil to hit $90 to $100 this year. If economies in the US and EU stay weak and China’s expansion cools, crude may not rise at all. But, it would not take much in terms of unsettling political problems in Iran, Nigeria, or Venezuela.

The economy in general, particularly for US carriers and European one is hardly robust. The EU may have a small improvement in GDP. The IATA acknowledges that. It assume almost no growth for the region. The problems in Europe and the effects that may have on US exports could be significant. America it not entirely out of harm’s way. A double dip recession is more likely by the week. Even if there is not one, the US economy is slowing.

All of that leaves Asia as the buttress for airline industry growth. The air above China and India will be more crowded this year. The skies above Japan will not be. And, Asia cannot carry the entire load of a global economy that appears to have gone into reverse. The IATA may be changing its forecast again later this year, and the revision will not be higher

Douglas A. McIntyre

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