Monday, March 7, 2011

IATA: Soaring fuel costs will cut 2011 airline profits nearly 50pc


THE International Air Transport Association (IATA) has cut industry 2011 profit 2011 forecast to US$8.6 billion from last's year's $16 billion because of high oil prices.

"Today oil is the biggest risk. If its rise stalls global economic expansion, the outlook will deteriorate quickly," said Giovanni Bisignani, IATA's director general and CEO.

IATA raised its average oil price forecast to $96 per barrel, up from $84 in December, factoring in the impact of fuel hedging which is roughly 50 per cent of expected consumption.

"This year the industry is performing a balancing act on a very thin tight-rope of a 1.4 per cent margin. It is a structural problem that the industry has faced with an average margin of just 0.1 per cent over the last four decades," he said.

Oil prices could still damage the industry despite global GDP forecast increase of 3.1 per cent and demand in both passenger and cargo sectors, up 5.6 per cent and 6.1 per cent respectively. Cargo yields are up by 1.9 per cent from previous forecast of zero growth.

Regional winners continue to be Asia-Pacific at $3.7 billion collective profit although much reduced from the previous year's $7.6 billion through its exposure to low hedging on fuel price. Inflation fighting measures in China are also slowing trade and air cargo demand.

Middle East carriers are expected to return a profit of $700 million, much better than the $400 million previously forecast, but down from the $1.1 billion profit that the region posted in 2010.

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