The International Air Transport Association (IATA) has painted a grim forecast, reporting that high oil prices, natural disasters and political unrest will devastate profits in 2011.
The latest projection says the airline industry will only make $4 billion USD in 2011; down 54 percent from its March forecast and tumbling 78 percent from last year's recorded net profit. According to the IATA, the $4 billion is a grim 0.7 percent profit margin for the industry on average.
"Natural disasters in Japan, unrest in the Middle East and North Africa, plus the sharp rise in oil prices have slashed industry profit expectations to $4 billion this year," IATA Director-General and CEO Giovanni Bisignani 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."
The report finds oil prices to be the main culprit. For each dollar increase in the price of fuel, airlines take on an additional $1.6 billion in average costs.
With oil prices forecast to hit an average of $110 per barrel, analysts are upgrading its impact on profitability 15 percent since their last survey. To compare, fuel was only 13 percent of an airline's costs in 2001. Now, experts believe fuel costs will account for 30 percent of industry-wide operating expenses.
Furthermore, the damage is worldwide. "North American carriers will see the $4.1 billion profit of 2010 fall to $1.2 billion; European carriers will deliver a $500 million profit, down from $1.9 billion in 2010; Middle East carriers will deliver a $100 million profit, down from $900 million in 2010; Asia-Pacific carriers are expected to earn $2.1 billion—the most profitable of all regions. Even so, this is dramatically down from the $10 billion profit that the region achieved in 2010," the association predicts.