Airline profits threatened by credit crisis: IATA

By Daryl Loo

SINGAPORE (Reuters) - Global airlines are likely to see a further profit cut in 2008 as the global credit crisis deepens, while fuel costs remain near record highs, the International Air Transport Association said on Sunday.

The association, which represents 240 airlines comprising about 94 percent of international air traffic, in December slashed its 2008 earnings forecast for members by more than a third to $5 billion, citing the two factors. It is due to revise the forecast in two months.

"We will have to see in April what happens. But if these are the conditions, then I think we may expect a downgrade," IATA Director General and Chief Executive Giovanni Bisignani told Reuters ahead of the Singapore Airshow this week.

Growth in global travel demand is expected to slow this year on fears that a possible U.S. recession will lead to a global economic slowdown, while crude oil is still trading over $95 a barrel.

Bisignani, who was chief executive of ailing Italian airline Alitalia before joining IATA in 2002, said signs of the slowdown emerged in December when the United States recorded a 3 percent decline in domestic air traffic.

"Now business traffic, with the high yields, has started to decrease. The traffic of bankers flying between London and New York, Paris and New York, this we started seeing in the first two months of this year."

Total net profit of Asia-Pacific airlines is forecast to drop to $600 million in 2008 from $700 million last year, the lowest in four years, as capacity expansion outstrips the rise in passenger demand.

Asian airlines will receive 427 new planes this year, boosting capacity by 8 percent, while passenger demand will rise just 6.4 percent, Bisignani said.

But he expects carriers in the region, especially in booming China and India, to continue ordering new planes to meet long-term domestic demand, while emerging low-cost carriers like Malaysia's AirAsia will also be hungry for more capacity.

"Low-cost carriers in Europe represent 29 percent of capacity, but in Asia its now just 6 percent. So there's still a lot of room to grow," Bisignani said.

Analysts are expecting Asian airlines to announce up to $20 billion worth of aircraft orders during the Singapore Airshow, the bulk from low cost carriers. Boeing, the world's top commercial planemaker, has said it will unveil $8 billion in orders.

ASIA LEADS

Bisignani said he intends to push for Asian governments to play a leading role in setting aviation rules in a speech on Monday.

Regional transport ministers, airline chiefs and airport operators meeting on Monday will discuss issues ranging from new airline business models and airport security to environmental challenges.

"Europe, the U.S. are mature markets and their influence will decline. Asia is still growing and will become the biggest market in 2010, so this is the chance to take leadership in setting new framework for the industry to develop in the next 50 years," said Bisignani.

This includes setting new standards in aviation, abolishing the system of bilateral air rights and establishing an "open skies" system between countries without restricting rights to foreign-owned carriers.

Bisignani welcomed Friday's open skies agreement between Australia and the United States but said it will take time before countries are willing to liberalize their aviation industries fully.

(Editing by Jan Dahinten, Paul Bolding)