Expects Oil Prices To Drop

Despite increasingly gloomy outlooks on the continued health of the commercial airline industry, the chief economist with the Air Transport Association says airlines should build on their net profits this year, and stay in the black for 2008.

The ATA's John Heimlich told the Dayton Daily News he projects a net profit of $5 billion in 2007, up from the 2006 figure of $3 billion -- which was the first time the industry didn't lose money since 2001. Heimlich expects the industry to remain profitable in 2008, as well... though he didn't give an estimate.

The cautious optimism comes shortly after the International Air Transport Association lowered its 2008 profit forecasts for airlines worldwide, citing high fuel costs and the decline of the US economy as factors in the expected downturn.

"We've seen the US housing market go into freefall," IATA Chief Economist Brian Pearce said earlier this month. "That's very negative for consumer sentiment and for passenger sentiment in markets connected to the US."

Heimlich counters airlines have taken steps to head off the negative impact of rising fuel costs, largely by reducing their non-fuel-related expenditures -- in particular, lowered labor costs (mandated by prior bankruptcies) and increasing aircraft fuel efficiency where possible. The economist also said expanded international routes should offset slowdowns in domestic travel, a position long-bandied by major US carriers.

Helping matters somewhat in 2008 is an expected drop in oil prices to around $80 per barrel, Heimlich said -- down from as high as $98 per barrel this year.

FMI: www.airlines.org