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Thu 4 Sep 2008 12:17 PM

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33% fall in Middle East airline profits forecast

The high price of crude oil will hit bottom line for Middle East carriers, says IATA.

Middle Eastern airlines will post a 33 percent drop in profits this year to $200 million, and the global business environment will remain difficult in 2009, the International Air Transport Association (IATA) predicts.

The global airline industry will post losses of $5.2 billion in 2008 based on an average crude oil price of $113 per barrel ($140 for jet fuel), according to a revised industry financial forecast.

“The situation remains bleak. The toxic combination of high oil prices and falling demand continues to poison the industry’s profitability,” said Giovanni Bisignani, Director General and CEO.

In its initial outlook for 2009, IATA expects the difficult business environment to continue, as air travel and freight is hit by weaker economic growth.

With an expected oil price of $110 per barrel ($136 for jet fuel) and continued weak growth, industry losses are expected to be $4.1 billion.

The 2009 fuel bill is expected to rise to 40 percent of operating expenses, as hedging offers less protection.

Fuel is expected to rise to 36 percent of operating costs this year, up from 13 percent in 2002.

“While there has been some relief in the oil price in recent months, the year-to-date average is $113 per barrel. That’s $40 per barrel more than the $73 per barrel average for 2007, pushing the industry fuel bill up by $50 billion to an expected $186 billion this year,” Bisignani said.

IATA also announced industry traffic data for July which showed a continued slowing of demand.

July passenger demand growth fell to 1.9 percent on the year, the lowest in five years.

Capacity increased by double that (3.8 percent), indicating that service cuts are not keeping pace with the fall in demand.

This pushed the load factor for the month to 79.9 percent, a drop of more than one percent compared to July 2007.

Cargo demand in July contracted 1.9 percent compared to 2007.

As a result of the weaker economic outlook, IATA has significantly revised downward its traffic forecast for domestic and international markets.

Passenger traffic is now expected to grow by 3.2 percent (was 3.9%) and air freight volumes by just 1.8 percent (was 3.9 percent).

This is only half the pace of expansion seen in 2007 and is boosted by the stronger growth seen at the start of the year, it said.

Strong traffic growth allowed the industry to partly absorb the rise in fuel costs from 2003 to 2007. This is no longer the case, it said.

North American carriers are expected to be hardest hit and are seen posting losses of $5 billion in 2008.

Asia Pacific is expected to see profits shrink to $300 million this year from $900 million in 2007.

European profits will tumble seven-fold to $300 million from $2.1 billion.

Latin American and African carriers will see losses deepen to $300 million and $700 million, respectively.

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