IATA cuts airlines’ profit forecast as oil prices soar

TOULOUSE: The airline industry’s profit this year will plunge 62%, a bigger drop than predicted in December, as fuel prices rise, the International Air Transport Association (IATA) said.

Carriers’ net income would fall to Us$3bil in 2012 from Us$7.9bil last year, with the profit margin coming in at 0.5% of sales, the Geneva- and Montreal-based trade group said yesterday in a statement. IATA forecast on Dec 7 that global airline earnings in 2012 would amount to Us$3.5bil, with a margin of 0.6%.

The price of oil has climbed about 12% since IATA published its last forecast. Iran has threatened to close the Strait of Hormuz, the main shipping outlet for Persian Gulf countries’ oil, in response to international sanctions against its nuclear-research programme. The airline industry was at risk of becoming unprofitable if oil prices jumped enough to hurt the global economy in addition to fuelcost effects, IATA said.

“I must emphasise that the industry is fragile,” IATA chief executive officer Tony Tyler said on a conference call. “It wouldn’t take much of a shock to turn a net profit to a loss, and that shock could be oil.”

The newest profit-forecast drop was moderated as European Union countries managed to avoid a deepening of the region’s sovereign-debt crisis, the cargo market stabilised and carriers slowed their seat capacity growth more than expected, IATA said. Fuel makes up about a third of airlines’ costs, according to the trade group.

The airline industry was generally profitable as long as worldwide gross domestic product increases exceeded 2%, the estimated growth rate for 2012, Tyler said.

Industrywide passenger and cargo capacity would rise 3.2% in 2012, based on announced schedules, a figure that lags behind a 3.6% traffic expansion forecast, IATA said. That’s a reversal of expectations in December, when the association anticipated a capacity expansion of 3.1%, outstripping a 2.9% in demand.

IATA said in the previous forecast that Europe’s sovereign-debt crisis and its effect on economic growth were the biggest threats to airline profitability. – Bloomberg