The International Air Transport Association (IATA) has forecast a $5 billion profit for airlines in 2007.

In his keynote State of the Industry address at the IATA Annual General Meeting in Vancouver, Giovanni Bisignani, IATA director general and CEO, said: “We expect airlines to make $5 billion this year. The industry has changed tremendously in five years. Labour productivity is up 56 per cent. Distribution costs are down 13 per cent. Non-fuel unit costs dropped 15 per cent and load factors are at record highs—76 per cent in 2006. Airlines needed an oil price of less than $20 per barrel in 2002 to break even. Today we are profitable at nearly $70 per barrel.”

While the results are encouraging, Bisignani also gave an important reality check. “Airlines are a $470 billion industry. A profit of $5 billion is peanuts. We need $40 billion just to cover the cost of capital. The industry is moving in the right direction, but with S$200 billion of debt, the financial hole is deep. The challenge for is to turn peanuts into sustainable profits.”

IATA outlined six priorities for the industry. They include:

* Safety: “In a decade we cut the accident rate in half. 2006 was our safest year ever, with one accident for every 1.5 million flights. And IATA member airlines did considerably better at one accident for every 2 million flights. The IATA Operational Safety Audit—a condition of IATA membership—is crucial to our efforts to make air travel even safer. Already 153 airlines are on the Registry and the industry is on target to improve safety a further 25 per cent by the end of 2008.” Not all regions are performing at the same level. “While we are raising the bar on safety, IATA is working with its members to deliver results. IATA’s Partnership for Safety has helped 89 airlines across Russia, Africa, the Middle East and Latin America.”
 
* Security: “Nearly six years after the tragic events of 2001, we are much more secure, but the system is a $5.6 billion uncoordinated mess. Progress has been made on liquids and gels, but with more checked baggage, infrastructure issues must catch up. And governments have forgotten that our success on safety is based on global standards and cooperation. We need to take the same approach with security. It is a government responsibility to provide effective security that is also convenient. Our passengers have been hassled for six years. That’s far too much,” said Bisignani.
 
* Simplifying the Business: “Simplifying the Business is a winner. In three short years, ET penetration jumped to 80 per cent. E-freight will be a reality in five locations by the end of this year. RFID will be part of a new approach to baggage handling. Forty-eight airlines are using bar coded boarding passes and CUSS is used in 59 airports around the world today. A $6.5 billion revolution is taking shape and now we are looking over the horizon to stage two—a strategy for self-service that will define a new age for efficient travel,” said Bisignani.
 
* Infrastructure Costs: “Infrastructure providers must also share airlines’ obsession with efficiency. While IATA achieved $1.9 billion in cost savings from infrastructure partners in 2006, cost increases totalling $2.6 billion wiped out the gains. While we are moving in the right direction with air navigation service providers, too many airports still operate as happy monopolies. Three airports — Bangkok, London and Paris—alone were responsible for $1.4 billion of the $2 billion of airport cost increases in 2006. Airlines live in a competitive world where commercial discipline is the regulator. Airport regulators are phantoms. Their financial results—with EBITs over 40 per cent—prove that it’s a dream world for airports and a nightmare for airlines that pay the bill. The target for 2007 is to give the draft European Directive on airport charges some teeth by incorporating cost efficiency targets for the national regu