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THE credit crunch has reduced profit estimates for the global airline sector by nearly $2 billion, amid fears that the crisis will curb a long-term industry revival.
The International Air Transport Association (IATA) slashed its profit forecast for 2008 by 19 per cent to $9.6 billion, saying the downturn in the credit market would affect airline balance sheets regardless of whether the global economy has a hard or soft landing next year.
Iata said bottomlines would be hit if an economic slowdown affected sales on key routes. It added, however, that profitability would also decline if governments rejuvenate economies and drive up costs such as oil by slashing interest rates.
“Either we get hit with higher costs or we get hit with lower demand,” said an Iata spokesman.
“The Iata forecast is not a surprise because the mood is pretty appalling,” said Chris Tarry, an airline industry analyst. “Consumer spending is coming under greater pressure, there is too much capacity in the market, and fares will have to come down.”
Giovanni Bisignani, Iata’s chief executive, said the recent liberalisation of the trans-Atlantic market must be matched by governments around the world if the industry is to reach its full potential. From next March all US airlines will be able to fly to the European Union and vice versa.
One of the expected beneficiaries of the Open Skies agreement, Silverjet, which will shortly open a new
The all-business-class airline said it would benefit from companies clamping down on travel costs.
“We have an advantage in a downturn because people will cut back on budgets,” said Lawrence Hunt, Silverjet’s chief executive.
“As budgets get tighter we have such a price advantage over the rip-off legacy airlines that we will fare very well in a downturn.”
A return flight to
Silverjet, which launches a second plane on its Luton (UK)-
