Powered By
Sponsored By
Digital Camera

Tuesday, June 7, 2011

IATA cuts airlines' profit forecasts by US$4 billion

Profit of airlines seen hit by rising fuel prices and political uncertainties
SINGAPORE: Rising fuel prices and geopolitical uncertainties have forced the International Air Transport Association (IATA) to slash the airline industry's profit forecasts by more than half to US$4bil for this year, compared with its earlier March projections of US$8.6bil.
It expects Asian carriers to be the biggest gainers, earning US$2.1bil in profit, although it is a sharp drop from US$10bil reported by the region's carriers last year.
North Amercian carriers' profit is expected at US$1.2bil, European carriers (US$500mil), Middle Eastern carriers US$100mil while African carriers will still be losing money.
IATA represents 230 airlines, comprising 93% of scheduled international air traffic.
An aircraft takes off at Cointrin airport in Geneva. Global airlines have cut their 2011 profit forecast by more than half as high oil prices and turmoil in Japan, North Africa and the Middle East weigh on the industry’s recovery. — Reuters
The new forecast is 78% lower than what airlines reported in 2010, which was US$18bil.
Of the expected revenues of US$598bil in 2011, the US$4bil profit equates to a 0.7% margin.
“At 0.7% margin there was little buffer against further shocks,'' IATA director general and CEO Giovanni Bisignani told reporters at the 67th IATA AGM in Singapore yesterday.
Cost of fuel was the main cause of the reduced profitability and he expected the average oil price for 2011 to be US$110 per barrel for Brent crude oil which would be a 15% increase over the previous forecast of US$96 per barrel.
“For each dollar increase in the average annual oil price, airlines face an additional US$1.6bil in costs.
With estimates that 50% of the industry's fuel requirement is hedged at 2010 price levels, the industry's 2011 fuel bill will rise by US$10bil to US$176bil.
Fuel is now estimated to comprise 30% of airline costs - more than double the 13% of 2001,'' he pointed out.
“We have built enormous efficiencies over the last decade. In 2001, we needed oil below US$25 per barrel to be profitable. Today, we are looking at a small profit with oil at $110 per barrel,” said Bisignani.
Director General and CEO of IATA Giovanni Bisignani, right, Singapore Airlines CEO Goh Choon Phong, center and IATA Corporate Secretary Tom Windmuller, left, at the IATA meeting on Monday. - AP
About 30% of fuel is hedged by most airlines but many had hedged the fuel at below US$100 a barrel.
There will be growth in airline traffic although at a slower pace.
Bisignani expects passenger demand to grow 4.4% over the year, a full 1.2 percentage points below the 5.6% previously forecast in March.
Airlines are putting in new capacity and that is expected to expand to 5.8% from 4.7% previously.
He lambasted India, the European Union Parliament and the governments of the UK, Germany and Austria for imposing high taxes on air travel.
He said the UK, German, Austrian and Indian governments should “stop compromising economic growth with aviation taxes”, adding that these governments “need a textbook on aviation's role as an economic catalyst. The first chapter is entitled Basta (enough) to more taxation'.”

No comments: