Executive Briefings

Airlines May Make $5bn This Year, But Debt Burden Remains an Issue, IATA Director Says

Profits of the world's airlines are expected to reach $5bn in 2007, according to Giovanni Bisignani, director general and chief executive officer of the International Air Transport Association (IATA). Many of the industry's operating benchmarks are on the positive side. Labor productivity has risen by 56 percent, distribution costs fallen by 13 percent, and non-fuel unit costs have dropped 15 percent, Bisignani said in his recent "State of the Industry" address at IATA's annual meeting in Vancouver, B.C. Airline load factors reached a record high of 76 percent in 2006, and the industry is profitable with oil at nearly $70 a barrel. That compares with the sub-$20 level that airlines previously required just to break even. But Bisignani also issued "a reality check." That $5bn in profits, he said, "is peanuts. We need $40bn just to cover the cost of capital. The industry is moving in the right direction, but with $200bn of debt, the financial hole is deep. The challenge is for us to turn peanuts into sustainable profits." Bisignani set forth six priorities for the airline industry: safety, security, simplifying the business, infrastructure costs, liberalization of operating rights, and environmental concerns. On the security side, Bisignani said the industry is in better shape than in 2001. Nevertheless, he called the current system of security "a $5.6bn uncoordinated mess. Progress has been made on liquids and gels, but with more checked baggage, infrastructure issues must catch up." Governments must embrace global standards that stress both security and convenience, he said. "Our passengers have been hassled for six years. That's far too much."

Visit www.iata.org.

Profits of the world's airlines are expected to reach $5bn in 2007, according to Giovanni Bisignani, director general and chief executive officer of the International Air Transport Association (IATA). Many of the industry's operating benchmarks are on the positive side. Labor productivity has risen by 56 percent, distribution costs fallen by 13 percent, and non-fuel unit costs have dropped 15 percent, Bisignani said in his recent "State of the Industry" address at IATA's annual meeting in Vancouver, B.C. Airline load factors reached a record high of 76 percent in 2006, and the industry is profitable with oil at nearly $70 a barrel. That compares with the sub-$20 level that airlines previously required just to break even. But Bisignani also issued "a reality check." That $5bn in profits, he said, "is peanuts. We need $40bn just to cover the cost of capital. The industry is moving in the right direction, but with $200bn of debt, the financial hole is deep. The challenge is for us to turn peanuts into sustainable profits." Bisignani set forth six priorities for the airline industry: safety, security, simplifying the business, infrastructure costs, liberalization of operating rights, and environmental concerns. On the security side, Bisignani said the industry is in better shape than in 2001. Nevertheless, he called the current system of security "a $5.6bn uncoordinated mess. Progress has been made on liquids and gels, but with more checked baggage, infrastructure issues must catch up." Governments must embrace global standards that stress both security and convenience, he said. "Our passengers have been hassled for six years. That's far too much."

Visit www.iata.org.