Airline industry raises profit forecast, but debt weighs

VANCOUVER (AFP) - The world airline industry raised its profit forecast for this year Monday to five billion dollars from 3.8 billion dollars, but said conditions need to improve more to help reduce heavy debts.

Giovanni Bisignani, director general of the International Air Transport Association, made the announcement in Vancouver at the opening of IATA's annual meeting.

"While the results are encouraging, airlines are a 470-billion-dollar industry," he said.

Calling a profit of five billion dollars "peanuts," Bisignani said the industry needed 40 billion dollars "just to cover the cost of capital."

"The industry is moving in the right direction, but with 200 billion dollars of debt, the financial hole is deep. The challenge is to turn peanuts into sustainable profits," he said.

The latest financial forecasts for the sector confirmed a healthy recovery from the nosedive that followed the September 2001 attacks in the United States and soaring fuel prices, sinking the sector in more than 40 billion dollars in losses over the past six years.

IATA already had sharply revised upward its 2007 estimate in April, from 2.5 billion dollars, as a relatively robust global economy spurred tourism and airline transport.

IATA represents some 250 airlines which account for 94 percent of scheduled international air traffic.

More than 150 airline chief executives as well as top management from airports, civil aviation authorities, manufacturers and non-governmental organizations are attending the three-day event, which ends Tuesday.

Bisignani said that factors in the improving financial position of carriers were an overall 56 percent rise in productivity and a 13 percent decline in distribution costs, as well as load factors -- the number of passengers filling seats -- at record highs of 76 percent in 2006.

As for the high cost of jet fuel, which has dug into profits in recent years as crude oil prices surged, the sector is now in a better position to manage the cost, thanks to strategies such as hedging, in which the carrier buys future supplies at a fixed price.

"Airlines needed an oil price of less than 20 dollars per barrel in 2002 to break even. Today we are profitable at nearly 70 dollars per barrel," he said.

Elsewhere in the conference, Air China said it was working to boost the number of flights to the United States as it moves toward integration in the Star Alliance of airlines to boost its global profile.

"Our priority for our development abroad is to integrate into the Star Alliance by the end of 2007," Lou Yongfeng, manager of international affairs for the carrier, told AFP, referring to the code-share alliance of 17 airlines including Lufthansa and United Airlines.

Additionally, the executive said, "we plan to increase our routes to the US" in the future.

Air China began service April 1 on a Beijing-San Francisco route, its third to the US market.

Last month, US and Chinese officials signed a new civil aviation agreement that more than doubles passenger flights between the two countries by 2012 and moves closer to an "open-skies" deal.