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Tue, Jun 03, 2008

IATA Reverses Its Profit Projection For 2008, Now Forecasts BIG Losses

Airlines Stand To Lose As Much As $6.1 Billion On Fuel This Year

It's the absolute worst-case scenario... they hope. The International Air Transport Association, whose members account for 93 percent of international traffic, projects airlines may report losses totaling $6.1 billion for 2008, as they face soaring jet fuel prices.

That projection is based on oil prices hovering close to the $135-per-barrel record reached May 22, reports Bloomberg. Prices have since dropped about $8 per barrel; IATA's official projection is for "only" a $2.3 billion loss, based on an oil price closer to $107 per barrel.

Still, even that mumber is a stunning reversal of the group's earlier projection of a $4.5 billion net industry profit. If it proves accurate, this will be the worst year for the airlines since 2003.

IATA members amassed a net profit of $5.6 billion in 2007, their first profitable year since the September 11, 2001 terrorist attacks. But CEO Giovanni Bisignani told attendees at the group's annual meeting in Istanbul, "Skyrocketing oil prices are changing everything. The situation is desperate and potentially more destructive than our recent battles with all the horsemen of the apocalypse combined."

UK-based business class airline Silverjet last week became the latest of a dozen airlines to ground its planes after running out of operating cash. Bisignani called the combination of steep fuel price increases, slowing demand and tightening global credit a "perfect storm," and the situation, "grim."

For the moment, manufacturers are putting on brave faces... while also preparing for potentially hundreds of cancellations of new plane orders. Airbus chief salesman John Leahy told the group he remains hopeful that current prices are merely a "bubble."

Bloomberg reports a unanimous consensus among attendees to call on governments to regulate airports more tightly, facilitate mergers, cut taxes, invest in new planes for state-run carriers and take steps to ensure that the cost of energy reflects its true value. IATA also warns labor unions to limit pay claims.

FMI: www.iata.org

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