Poor yields from Asia-Pacific carriers combined with sluggishness in cargo markets saw a decline in absolute profits from US$1.2 billion in 2005 to an expected $700 million in 2007, the International Air Transport Association (IATA) said today

Globally, airlines are expected to post a $5.6 billion net profit for 2007, up from the $5.1 billion forecast in June, despite record oil prices, IATA said.

The average oil price for 2007 was revised upwards to $67 per barrel (previously $63), but the higher prices were more than offset by stronger than expected demand for passenger traffic and a general improvement in airline financial performance.

"While we are more optimistic for 2007, the continuing high price of oil combined with turmoil in credit markets is a cause for concern in 2008," IATA director general and CEO, Giovanni Bisignani, said in his revised financial forecast for the world's airlines

The industry net profit for 2008 is forecast at $7.8 billion, down from the $9.6 billion predicted in June.

"The impact of the credit crunch puts some question marks over the industry's performance next year and the continuing high price of fuel will become more difficult to mitigate with efficiency gains," said Bisignani.

Underlying the forecast is a substantial shift in relative regional performance, primarily driven by capacity increases. Since 2001, Asia-Pacific based carriers, preparing to serve the massive opportunities in China and India, added 42 percent to their capacity and improved load factors by two percentage points.

By contrast, North American carriers have added 11 percent to capacity and improved load factors by six percentage points.

European carriers expanded capacity 29 percent with load factors showing a five percentage point increase.

These factors led to an increase in North American carriers' unit revenues driving expected net profits to $2.7 billion - the highest among the major regions.

Europe's carriers continued to benefit from buoyant long-haul markets, improving profitability continually from $1.6 billion in 2005 to an expected $2.1 billion this year.

"We are clearly seeing the benefits of hard-won efficiency gains from restructuring. Labour productivity is up 56 percent since 2001 and non-fuel unit costs are down 15 percent.

“The drive for 100 percent e-ticketing by June 2008 as part of the IATA Simplifying the Business initiative will deliver $3 billion in cost savings.

Balance sheets are improving, but the $200 billion mountain of accumulated debt continues to make civil aviation a fragile industry. Commercial freedom is a critical missing link. In the coming months, carriers will start taking advantage of opportunities created by the US-EU open skies agreement.

"We must now be looking forward to even broader liberalisation, including ownership. Only when we have the same freedoms as other industries to run our businesses as businesses will we be fully able to meet both investor and customer expectations," said Bisignani.

"Our partners and governments must also get more serious about efficiency and the environment. For example, the UN estimates that inefficient infrastructure and air traffic management adds 12 percent or $14 billion to our fuel bill. And it unnecessarily adds 73 million tonnes of CO2 to the environment. This must change - urgently," said Bisignani.