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Airlines profits to drop 50% from 2010 because of rising oil prices, says IATA

Wednesday, March 2nd 2011 - 15:29 UTC
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The industry as a group has lost money in seven of the last 10 years. The industry as a group has lost money in seven of the last 10 years.

Airlines stand to earn almost 50% less this year than in 2010 as rising oil prices limit the benefits of a rebounding economy, anticipated IATA.

IATA cut its forecast for industry profit to 8.6 billion USD from the 9.1 billion USD projected three months ago. In 2010, airlines earned a combined 16 billion USD. IATA raised its oil- price prediction to 96 a barrel USD for Brent crude from 84 USD, lifting the industry fuel bill by 10 billion to 166 billion USD.

“There is very little buffer for the industry to keep its balance as it absorbs shock,” IATA Chief Executive Officer Giovanni Bisignani said in a statement. “Today, oil is the biggest risk. If rises stall the global economic expansion, the outlook will deteriorate very quickly.”

Brent futures rose to as much as 119.79 a barrel last week on concern turmoil spreading across the Middle East may disrupt supplies from Iran, OPEC’s second-largest producer. Fuel accounts for 29% total operating costs for airlines this year, IATA said.

IATA predicted revenue of 594 billion USD for the industry this year, for a profit margin of 1.4%. Airlines as a group have lost money in seven of the last 10 years.

To reflect a strengthening global economy, IATA lifted its passenger growth forecast to 5.6% from 5.2%, and cargo growth to 6.1% from 5.5%. Asia Pacific carriers are expected to have the largest collective profit this year, at 3.7 billion, and the highest operating margins, at a projected 4.6%, IATA said.

North American carriers will deliver 3.2 billion USD in profit, unchanged from the previous forecast and down from 4.7 billion profit 2010, IATA said. European carriers are projected to bring in collective profits of 500 million, up from the previous forecast of 100 million USD.

While a weaker Euro is stimulating exports, outbound freight and long-haul business travel, Europe’s carriers will still be the least profitable among the major regions, with an expected operating margin of 1.1%, IATA said.

Latin American carriers are forecast to post a 300 million USD profit. This is down sharply from the 1 billion USD that the region made in 2010 and from the previously forecast 700 million USD.

Strong economic growth and international trade in the region are driving travel and cargo demand and the region’s profits for airlines. Exposure to higher oil prices is the key reason for the expected deterioration in the region’s profitability this year, concluded IATA.

Categories: Economy, Tourism, International.

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