Global airlines body IATA predicted the industry could return to profit in 2007 after six years of heavy losses and lowered its forecast for 2005 worldwide losses to $6 billion.

Swinging cuts in operating costs and strong passenger growth were helping to restore profitability but the high price of fuel still weighed heavily on the sector, IATA Chief Economist Brian Pearce said on December 14 at a news conference.

The International Air Transport Association said global industry losses would narrow further to $4.2 billion in 2006 and then head into the black in 2007, posting aggregate net profits that could exceed $6 billion -- a level that still fails to cover the sector's costs of capital.

"Fuel prices remain a major risk but now appear to be on a slow downward trend as global economic growth and demand for oil slows," Pearce said.

"Returns to airlines are slowly improving. Substantial efficiency gains have been achieved. Airlines outside the US have been making money at the operating level since 2002 and US airlines are close to breaking even at this level."

A net sector profit of $6 billion would still represent an operating margin of only around 3 per cent, well below the 8-9 per cent needed to cover the cost of capital and to generate shareholder value, Pearce said.

"Returns to airlines are slowly improving but are far from allowing long-term financial sustainability," Pearce said.

Declines in fuel prices had led IATA to lower its forecast 2005 loss from a previous forecast of $7.4 billion.

The year 2005 would represent the fifth consecutive year that the global airline sector has posted huge losses, now totalling $42 billion for the period. "This past year has seen the sharp rise in fuel prices more than offset the efficiency gains and a strong revenue environment," Pearce said.

Losses in the troubled US airline sector alone for 2005 were set to deepen to $10 billion versus $9.1 billion in 2004, he said.

( www.financialexpress.com)