And US Economy Will Lead The Slump
In a move that wasn't unexpected --
but still paints a gloomy picture -- on Wednesday the International
Air Transport Association lowered its 2008 profit forecast for
airlines worldwide, citing high fuel costs as the primary reason
for the downturn.
Bloomberg reports IATA now projects airline earning will fall 11
percent next year, fueled (as it were) by higher oil prices and a
US-led slump in demand.
"We've seen the US housing market go into freefall," IATA Chief
Economist Brian Pearce said. "That's very negative for consumer
sentiment and for passenger sentiment in markets connected to the
US."
Carriers will realize that drop in earnings coming off the first
year the worldwide airline industry posted a profit since 2000.
IATA says airlines will post an estimated $5.6 billion in net
income this year.
Pearce also says airlines will be hurt by their own avarice...
as carriers take delivery of more and more airliners, without
capacity to fill those seats. "Deliveries are still accelerating,"
he said. "We're going to be faced with a situation next year where
deliveries of aircraft are rising as traffic is slowing."
Morgan Stanley analyst Penny Butcher says the industry expected
profits to level off in 2008... but not necessarily the drop IATA
now projects.
"The consensus has been for a flattening of growth in
profitability, but IATA's numbers are actually quite negative,"
Butcher said. "I don't think European airlines will be immune from
the drop in growth, but they may be able to do better than some
other regions, particularly if most of the economic issues are
stuck in the US."
Others say one year of profitability hasn't given airlines the
necessary cushion to survive a long downturn. "The peak of the
business cycle is over and we're still $190 billion in debt," IATA
Director General Giovanni Bisignani said, adding the industry is
"heading for a downturn with little cash in the bank to cushion the
fall."
As ANN reported, Bisignani
hinted at trouble down the line last month, when he warned a
Washington Aero Club audience US carriers will be hit hard by
credit woes and labor unrest... further adding to anticipated woes
in 2008.
But there is some good news... at least for non-US operators.
Pearce says globally, the long-term economic impact from slowing US
travel demand should be minimized by growth in Latin America, the
Middle East and Asia.
"This time around we're seeing some independence of growth in
Asia and to a lesser extent in Europe," he said, predicting those
factors will lead to a that will "renewed upturn" in 2009.
"This is a dip rather than a recession."