The International Air Transport Association (IATA) has predicted the airline industry will face reduced profits in 2008 in the light of the global financial crisis and rising oil prices.

The organisation, which represents 280 airlines worldwide, forecast the industry would record profits of $5 billion next year, down from $5.6 billion in 2007.

In line with the profits fall, the IATA also believes traffic and revenue growth will both decline markedly in 2008.

The association's estimate for traffic growth this year is 5.9% and revenue growth is 8.4%. In 2008, the association predicts, traffic growth will fall back to 4.7% and revenue growth decline to just 4%.

The IATA's new predictions represent a significant re-estimation of their previous forecast, made in September, which predicted the industry would generate $7.8 billion in 2008 and record traffic and revenue growth greater than that expected this year.

Credit Crunch and Growing Fuel Costs

The IATA say that the lower profits, traffic and revenue growth expected in 2008 can be explained by a combination of two factors - the effects of the global credit crunch and increasing cost of oil.

IATA Director General and Chief Executive Officer Giovanni Bisignani commented: "A favourable economic environment and effective efficiency measures helped mitigate the impact of high fuel prices and underpinned stability improvements. With the credit crunch, that is changing".

The cost of oil has risen by $30 a barrel since the IATA made its original forecast in September. The IATA expect that the industry's fuel bill will increase by $14 billion during 2008 to $149 billion.

Fears of a Downturn

The IATA believes there is potential for a significant downturn in the industry due to the financial crisis and rising fuel prices.

Bisignani said: "The peak of the business cycle is over, and we [the industry] are still $190 billion in debt. So we could be heading for a downturn with little cash in the bank to cushion the fall".

He added: "The challenges get tougher in 2008."

Source - Airport International's Aviation Correspondent