Airlines envisage good profits in 2007

Airlines are increasingly confident that the improvements in profitability can be sustained into 2007, the International Air Transport Association (IATA) said according to its airline business confidence index. Three-quarters of respondents expect profitability to improve in 2007, with only 5% expecting to see a deterioration. Increased confidence in future profitability is clearly linked to the fall of more than 25% fall in oil prices since August 2006, but is also boosted by further demand growth and by greater airline efficiency improvements, it said.

The demand environment remains positive for 2007, building upon the strong increases in volumes seen in the last quarter of 2006. Airlines continue to face risks that could upset the positive demand growth, many of which (e.g. a global economic slowdown, security incidents, an avian flu pandemic) are beyond its control. These risks cannot be removed, but airlines’ flexibility to respond to them can be planned and managed, IATA said.

On average, airlines have been able to use the positive demand environment to increase yields, though some have already reduced yields through lower fuel surcharges as the oil price has eased. Looking ahead, the majority of respondents expect to see no change in yields in 2007, though strong competition from LCC airlines will continue to place downward pressure on passenger yields in some markets.