Bert van Leeuwen, Chief Aviation Researcher at DVB Bank, the Frankfurt based specialists in international transport finance, today predicted a continuation of the recovery in air traffic volume during 2005 but warned that the rate of growth will be significantly lower than the upturn achieved in 2004. According to Mr van Leeuwen, last year's double digit growth in air traffic must be seen in the context of a combination of "real" growth together with the effect of 2003's low base level. The growth in air traffic volume in 2005 is projected to be in the region of 5-6%. DVB argues that although such growth is respectable, the level of profitability among global airlines will remain highly dependent on the development of fuel prices and, particularly with regard to the "US Majors", the degree of success experienced in addressing current pressures. Although the oil price has retreated from the all time high seen in autumn 2004, the current price is still considered to be well above the industry's "break even" level. In the absence of any significant reduction in competitive pressures, yields are expected to remain depressed and it would appear unlikely that efficiency gains and cost cutting measures (including labor cost reductions) will prove sufficient to restore industry wide profitability. During the New Year, airlines in both Europe and the US announced significant fare reductions and simplifications. Although it is too early to draw conclusions, such moves would not appear to bode well for a significant yield recovery in 2005.  Asia will inevitably have to absorb the negative effects of the tsunami disaster although, given the robust growth of the Asian market, this is unlikely to significantly affect airline results. DVB also expects a further strengthening of the equipment market. In Mr van Leeuwen's words: "It will be fascinating to watch the competition between the 7E7 and the A350, particularly in view of the fact that the latter, with the incorporation of new wings, new engines and the utilisation of high-tech materials in the design, can no longer be described as a mere upgrade of the A330. With the 7E7 and the A350 set to hold the spotlight, the current generation of medium sized wide-bodies is at risk in terms of accelerated obsolescence." The used equipment market is expected to strengthen further although, depending on developments, the fleets of the endangered US Majors could serve to disrupt the emerging equilibrium, particularly in respect of the 50-seater market and the older generation 150-seaters. The 737 Classic remains highly popular in the passenger market but also appears set to become the standard narrow-body freighter. The MD80 would appear likely to remain a problem child but the clouds may be dispersing for the 757, despite limited success in the cargo conversion market during recent years. Modern wide-bodies have been absorbed in larger numbers and the MD11 and the B747-400 have established themselves in the freighter conversion market. In the medium wide-body segment, the A300-600, the A310 and the B767 have their respective followers although none of the types have managed to establish themselves as the standard medium wide-body freighter aircraft. In general terms the B767-300ER is perceived as the superior medium wide-body freighter but prices have not come down far enough, as yet, and demand from the passenger market is serving to prevent large-scale conversion. In conclusion, DVB is confident that the aviation industry will, at the least, position itself in 2005 for renewed prosperity during the rest of the decade based on (i) the positive outlook for continuing traffic growth (ii) the fact that fuel prices, while still high, are significantly below the levels of October 2004 (iii) many airlines, albeit with exceptions in the US, are back on track and (iv) the recovery in equipment values.