Profit forecast for airline industry slashed

2011 profit likely to be 54 % lower than predicted

The International Air Transport Association (Iata) has slashed its profit forecast for the airline industry because of increasing oil prices, political unrest and natural disasters.

Iata said it expected the industry to make a profit of US$4 billion in 2011, which is a dramatic 54% lower than the $8.6 billion forecast it made in March.

It is also 78% lower than the $18 billion profit the industry recorded in 2010.

The association said that on predicted revenues of $598 billion, the industry profit margin equated to 0.7%.

Giovanni Bisignani, Iata’s Director General and CEO, said: “That we are making any money at all in a year with this combination of unprecedented shocks is a result of a very fragile balance.

“The efficiency gains of the last decade and the strengthening global economic environment are balancing the high price of fuel. But with a dismal 0.7% margin, there is little buffer left against further shocks.”

Iata said the main reason for the reduction in the forecast was the cost of fuel. It noted the average oil price for 2011 is expected to be $110 per barrel (Brent), a 15% increase over the previous forecast of $96 per barrel.

For each dollar increase in the average annual oil price, airlines face an additional $1.6 billion in costs, it said.

Iata said the high cost of fuel would also have an impact on demand growth and predicted cargo demand is expected to increase 5.5% and not 6.1% as anticipated earlier.

Broken down into regions, Asia-Pacific carriers are expected to earn $2.1 billion, which is “dramatically” down on the $10 billion profit that the region achieved in 2010.

North American carriers are expected to report profits of $1.2 billion, down on the $4.1 billion profit of 2010, because the region’s carriers have an older, less fuel-efficient aircraft fleet.

European carriers are expected to report a $500 million profit, down from $1.9 billion in 2010 as the sovereign debt crisis is dampening demand from some European economies.

Middle East carriers will deliver a $100 million profit, down from $900 million in 2010 because of the political unrest in parts of the region.

Latin American carriers are predicted to make profits of $100 million, which is down considerably on the $900 million profit of 2010 as capacity growth of 6.9% outstrips the 6% increase growth in demand.

Finally, African carriers are forecast to post a loss, $100 million, in 2011. This is due to political unrest across Northern Africa dampening demand. (source: IFW)

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