Airline profits likely to plunge this year

AP, Monday 6 Jun 2011

Mideast turmoil, natural disasters and higher fuel prices are all likely to impact bottom lines, says transport association

EgyptAir
Egypt's national carrier will feel the pain of political upheaval, says IATA (Photo: Reuters)

Political violence in the Middle East and North Africa is among the reasons for a likely plummet of airline profits this year, an industry group said Monday. Natural disasters and higher fuel prices, in part caused by MENA turmoil, will also contribute.

Airlines will probably earn about $4 billion in 2011, down from $18 billion last year, the International Air Transport Association said. IATA's previous forecast in March estimated 2011 profits of $8.6 billion.

"Natural disasters in Japan, unrest in the Middle East and North Africa, plus the sharp rise in oil prices have slashed industry profit expectations," IATA Director General Giovanni Bisignani said in a statement. "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."

Higher fuel costs -- crude rose to US$115 last month from $84 in February --  are the largest obstacle to airline profitability, IATA said.

The industry's fuel bill will likely rise by $10 billion this year to $176 billion and fuel now accounts for 30 percent of an airline's costs, up from 13 per cent in 2001, IATA said.

Airlines are counting on the global economy continuing to grow to help offset higher oil prices. Passenger numbers will likely increase 4.4 per cent this year while cargo should grow 5.5 per cent, though both forecasts are below IATA's March estimates.

"The corporate sector is cash-rich, business confidence is high, and world trade continues to expand," IATA said.

"The key risk to this outlook is a weakening of global economic growth." IATA expects a razor thin 0.7 per cent profit margin for airlines this year on revenue of $598 billion.

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