IATA issues challenge to airlines: "Turn peanuts into sustainable profits!"

By centreforaviation.com

IATA is unhappy with the current state of economics for the airlines industry, so it is offering some advice.

IATA has boosted its combined airline industry net profit target for 2007 by 34 percent since the last forecast just three months ago, while the 2008 outlook has been upgraded by 26 percent.

The upgrade is even more dramatic when compared to IATA’s forecast for industry profits in Dec-07. The airline body’s operating and net forecasts for 2007 are now 53 percent and 104 percent higher than six months ago.

What has changed? IATA states that the passenger business remained “particularly strong” in the first quarter of the year, reflecting stronger than expected economic growth in Asia and Europe. But projected Asian airline profitability for this year is unchanged from the April forecast, meaning the region is missing out on the gains enjoyed by other regions (including big profit upgrades in North America, Europe and the Middle East), or IATA was spot on with its previous outlook for Asia.

Despite the profit upgrade, IATA is clearly unhappy with the returns the industry is making and with US$200 billion of debt, “the financial hole is deep.” IATA director general Giovanni Bisignani said, “The challenge for is to turn peanuts into sustainable profits.”

The answer for many carriers in Asia is turning to peanuts to sustain profits. Korean Air joined ANA in the past week in confirming plans to launch an LCC within three years to combat rising competition, particularly from China.

Korean Air’s LCC will operate Korea domestic routes and short and mid-haul international routes using a “high-efficiency” B737 fleet. The company stated, “This is a display that Korean Air shall no longer remain indifferent to invasion of low cost carriers from China and Southeast Asia into the Korean market.”

Indifference in other parts of North Asia could quickly dissipate in other parts of North Asia the announcement of LCC plans by Korean Air and ANA.

Printable Version | published Jun 06, 2007

Important Links

» Home