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Airlines Bid for More Profits

The U.S. carriers will likely earn $3.5 billion to $4.5 billion this year, the Air Transport Association says.
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CHARLOTTE, N.C. -- The employment picture is dim, fuel prices are at record levels, the economy is slowing, and airline share prices are near a five-year-low.

But the U.S. airline industry remains optimistic for 2008.

The industry will likely report a net profit of $3.5 billion to $4.5 billion this year, economist John Heimlich of the Air Transport Association estimated Friday. That follows 2007 profits of about $5 billion and 2006 profits of around $3 billion.

"In 2008, ongoing passenger and cargo revenue strength -- particularly in the international arena -- will help offset a sizeable increase in fuel expenses and a modest increase in nonfuel expense," Heimlich wrote in a report. "That would make 2006-2008 the airlines' first profitability 'three-peat' since 1998-2000."

The outlook calls for capacity reductions, combined with continued strong demand. "In the face of uninspiring forecasts for the U.S. economy and yet another record year for crude oil prices, the nation's carriers have moved aggressively to redeploy assets and adjust aircraft utilization to trim unprofitable flying," Heimlich said.

"Passenger and cargo demand is surging globally," he noted. "The reality is that the world economy, led by China, India and other developing economies, is growing at twice the rate of the U.S. economy."

A traffic report by

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US Airways

(LCC)

backed up Heimlich's outlook. The carrier, which has repeatedly called for industrywide capacity reductions, said its December capacity declined 4.4% from a year earlier while passenger revenue per available seat mile increased between 2% and 4%.

The

Amex Airline Index

traded Friday at 31.40, down 1.7%. Earlier in the session it was below 31, the first time that has happened since 2003.

Worldwide, November passenger demand rose 9.3%, the fastest growth rate in 18 months, according to the International Air Transport Association, which represents 240 carriers worldwide (North America passenger traffic represents just 19% of its total). The worldwide industry recorded a $5.6 billion profit, IATA said.

However, "we ring in 2008 with a warning bell," said CEO Giovanni Bisignani, in a prepared statement. "Passenger demand growth is expected to fall to 5.0%. Against a backdrop of robust world trade, sluggish freight growth continued to be a disappointment."