Global airline industry faces a loss of $6 billion in 2008, warns IATA

The global airline industry is facing a loss of $2.3 billion in 2008 because of the prohibitive prices of aviation fuel, according to the International Air Transport Association (IATA). And, if oil prices stayed at $135 a barrel, the losses could go up to over $6 billion.

It is for the third time in 2008 that the worldwide airline industry has downgraded its forecast for 2008

The International Air Transport Association is an international industry trade group of airlines headquartered in Montreal, Quebec, Canada. The organisation  represents 230 airlines, comprising 94% of scheduled international air traffic.

At the recent annual conference of the International Air Transport Association held in Istanbul, Turkey, Giovanni Bisignani, director-general of IATA, said: “The aviation industry’s health will depend on what happens to oil prices during the remainder of 2008. Every $1-rise in the oil price adds $1.6 billion to the global industry’s fuel bill.”

IATA’s forecast of huge losses in 2008 comes in the midst of carriers grappling with the phenomenal rise in fuel costs. The association had, in 2007, initially predicted that worldwide profits of the airline industry in 2008 would be $7.8 billion. Later, the forecast was trimmed down to $5 billion in November 2007, and again down to $4.5 billion in March 2008.

According to the International Air Transport Association, global airline industry had reported a collective profit of $5.6 billion in 2007.

Over a dozen airlines have filed for bankruptcy protection or entered administration so far in 2008 – with most of the losses occurring in the United States.

In the  opinion of analysts, airline companies in the United States are more vulnerable to losses than in other regions since carriers in the US operate relatively older and less fuel-efficient fleets, besides having the disadvantage operating in a slowing domestic economy.

Analysts point to the low-cost carrier Ryanair, the Irish airline headquartered in Dublin and Europe’s largest low-cost carrier, as an indication of the severity of the airline industry’s problems in Europe.

Though Ryanair, Europe’s largest carrier by passenger numbers, was expecting net profits of about €480 million (£379 million) in 2008 – up from €401 million in 2007 – analysts believe that the company is likely to halve the profit forecast for 2008-09.

Embattled airlines worldwide are responding to the skyrocketing oil prices in various ways, including raising fares.

For instance, British Airways, the national airline and flag carrier of the United Kingdom and one of the largest airlines in Europe, recently raised its fuel surcharge for the second time in a month. British Airways is expected to go to the extent of grounding flights in 2008 if the fuel price continues to be high.

At the annual conference of the International Air Transport Association, its director-general Giovanni Bisignani, described the global airline industry’s situation as “desperate.” He told the delegates:  “The airline industry is struggling for survival, with 24 airlines folding since January 2008. The situation is desperate and potentially more destructive than our recent battles with all the horsemen of the apocalypse combined.”

IATA has estimated that the airline industry’s fuel bill will go up by $40 billion – nullifying, in the process, the profit gained in 2007 seven times over – to $176 billion. (This estimate has been based on an average oil price of $107 a barrel.)

With a view to tiding over the current crisis, Giovanni Bisignani unveiled an ‘Istanbul Declaration’ calling on governments to abolish restrictions on airline ownership – such as limiting foreign control of US airlines to no more than 25% of their shares, and slashing aviation taxes, like air passenger duty in the United Kingdom.