Soaring fuel prices and slowing economic growth are likely to wipe out much of the airline industry's profits next year, despite steady increases in global demand for air travel, the International Air Transport Association, a leading trade group, said on Wednesday.
Analysts said the expected slowdown could increase pressure on less-profitable carriers, particularly in the US, to merge.
With oil prices hovering in a range of US$90 to US$100 a barrel, the association cut its forecast for next year's industry profits by more than one-third to US$5 billion, down from the US$7.8 billion it predicted in September.
It was the industry's second sharp earnings revision in less than six months; in June it issued a forecast of US$9.6 billion in profits for next year.
"The peak of the business cycle is over and we are still US$190 billion in debt," said Giovanni Bisi-gnani, the association's director general. "So we could be heading for a downturn with little cash in the bank to cushion the fall."
Airline earnings have improved strongly this year after six unprofitable years in the wake of the terrorist attacks of Sept. 11, 2001. Aggressive efforts to cut costs have reduced nonfuel expenses by 16 percent since 2001 and for the first 10 months of this year passenger traffic rose 7.3 percent from the period a year earlier.
The association said that indicated that demand remained robust in most regions. But the increasing risk of a sharp economic downturn in the US threatens to limit spending on air travel, particularly among business passengers.
In a report accompanying the revised forecast, the association's chief economist, Brian Pearce, wrote: "Economic growth and airline revenues have been holding up well during 2007, helping to offset fuel costs and boost airline profitability."
He predicted, however, that "revenue support will drop away during 2008 as the US economic slowdown directly restricts air travel growth and has knock-on effects on linked economies and travel markets."
Pearce said air traffic in Asia, particularly in China, was likely to grow unabated and to slow only slightly in Europe.
North American carriers were likely to see the biggest drop in profit, down nearly 19 percent next year to US$2.2 billion, from a forecast of US$2.7 billion this year. With 35 percent of their fleets more than 25 years old, US carriers were expected to be hurt most by higher fuel costs because older planes can be 30 percent to 40 percent less fuel-efficient than newer aircraft. The US domestic market represents about 30 percent of global air traffic.
The air transport association's revised profit outlook is based on a price forecast for crude oil next year of US$78 a barrel on average, well above the US$67 average price it forecast in September. The group said it expected fuel to represent 30 percent of total operating costs, up from slightly more than 10 percent in 1997.
Most US airlines remain heavily in debt, making them particularly vulnerable to swings in fuel prices or the effects of an economic downturn.
"This industry is so highly leveraged that you don't need a big change in one factor to have a significant impact on profitability," said Lloyd Brown, an airline industry analyst at Ernst & Young in London.
GAINING STEAM: The scheme initially failed to gather much attention, with only 188 cards issued in its first year, but gained popularity amid the COVID-19 pandemic Applications for the Employment Gold Card have increased in the past few years, with the card having been issued to a total of 13,191 people from 101 countries since its introduction in 2018, the National Development Council (NDC) said yesterday. Those who have received the card have included celebrities, such as former NBA star Dwight Howard and Australian-South Korean cheerleader Dahye Lee, the NDC said. The four-in-one Employment Gold Card combines a work permit, resident visa, Alien Resident Certificate (ARC) and re-entry permit. It was first introduced in February 2018 through the Act Governing Recruitment and Employment of Foreign Professionals (外國專業人才延攬及雇用法),
CAUTION URGED: Xiaohongshu and Douyin — the Chinese version of TikTok — are tools the Chinese government uses for its ‘united front’ propaganda, the MAC said Mainland Affairs Council (MAC) Minister Chiu Chui-cheng (邱垂正) yesterday urged people who use Chinese social media platforms to be cautious of being influenced by Beijing’s “united front” propaganda and undermining Taiwan’s sovereignty. Chiu made the remarks in response to queries about Chinese academic Zhang Weiwei (張維為) saying that as young Taiwanese are fond of interacting on Chinese app Xiaohongshu (小紅書, known as RedNote in English), “after unification with China, it would be easier to govern Taiwan than Hong Kong.” Zhang is professor of international relations at Shanghai’s Fudan University and director of its China Institute. When giving a speech at China’s Wuhan
ENHANCE DETERRENCE: Taiwan has to display ‘fierce resolve’ to defend itself for China to understand that the costs of war outweigh potential gains, Koo said Taiwan’s armed forces must reach a high level of combat readiness by 2027 to effectively deter a potential Chinese invasion, Minister of National Defense Wellington Koo (顧立雄) said in an interview with the Chinese-language Liberty Times (sister newspaper of the Taipei Times) published yesterday. His comments came three days after US Secretary of State Marco Rubio told the US Senate that deterring a Chinese attack on Taiwan requires making a conflict “cost more than what it’s worth.” Rubio made the remarks in response to a question about US policy on Taiwan’s defense from Republican Senator John Cornyn, who said that Chinese
The zero emissions ship Porrima P111 was launched yesterday in Kaohsiung, showcasing the nation’s advancement in green technology, city Mayor Chen Chi-mai (陳其邁) said. The nation last year acquired the Swiss-owned vessel, formerly known as Turanor PlanetSolar, in a bid to boost Taiwan’s technology sector, as well as ecotourism in Palau, Chen said at the ship’s launch ceremony at Singda Harbor. Palauan President Surangel Whipps Jr and Minister of Foreign Affairs Lin Chia-lung (林佳龍) also attended the event. The original vessel was the first solar-powered ship to circumnavigate the globe in a voyage from 2010 to 2012. Taiwan-based Porrima Inc (保利馬) installed upgrades with