Global airline recovery threatened by weak global economy

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Global airline executives may be forced to slash industry profit expectations at their major annual conference next week as fears grow of a relapse in the world economy.

Buffeted by a series of shocks from Japan to the Arab world and by high oil prices, the International Air Transport Association (IATA) faces ominous signs the economic rebound that pulled many airlines out of financial trouble may be screeching to a halt.

Last year, the industry recovered faster than expected from the recession, posting a record profit of USD 16 billion, thanks to rising demand and moves to shed capacity. But IATA has said its recent 2011 forecast for USD 8.6 billion profits now looks optimistic.

Worldwide traffic rebounded 16.5% in April, but this was distorted by the six-day shutdown of European airspace because of ash clouds from an Icelandic volcano a year earlier. In March, annual growth slowed 2 percentage points to 3.8%.

"The airline industry often has to deal with setbacks, but there is real concern over the global economy," said Howard Wheeldon, senior strategist at brokerage BGC Partners in London. "There are strengthening signs that it hasn't reached the new low yet because of questions over consumer spending."

While officials at the US Federal Reserve view a recent soft patch of US economic data as transitory, concerns of a deeper and protracted slowdown have grown.

It is an unsettling backdrop, even for an industry accustomed to lurching from crisis to crisis, as 700 top airline executives gather in Singapore for IATA's annual meeting from June 5 to 7.

The annual meeting had already been disrupted by unrest in North Africa, which caused a dip in air travel demand and prompted organizers to move the prestigious event from Cairo to Singapore.

IATA, whose 230 members claim to carry 93% of global passenger traffic, updates its widely watched financial forecast for the USD 600 billion global airline industry on Monday.

Analysts say it is almost certain to signal a more cautious approach.