Arab Today, arab today iata halves airline profit outlook to 4bn in 2011
Last Updated : GMT 10:43:16
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IATA halves airline profit outlook to $4bn in 2011

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Arab Today, arab today IATA halves airline profit outlook to $4bn in 2011

Singapore - AFP

IATA on Monday halved its profit forecast for the airline industry to $4 billion in 2011 due to the March 11 tsunami in Japan, unrest in the Middle East and North Africa and high oil prices. \"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,\" International Air Transport Association (IATA) director-general Giovanni Bisignani said. \"Natural disasters in Japan, unrest in the Middle East and Africa, plus the sharp rise in oil prices have slashed industry profit expectations to $4 billion this year,\" he said at IATA\'s annual general meeting, which is being held in Singapore this week. The revised profit outlook is down sharply from a previous estimate of $8.6 billion made in early March just before the tsunami-quake disasters struck northeastern Japan. If the forecast is accurate, it would mark a 78 percent decline from the post-recession profit of $18 billion that the world\'s airlines made last year. IATA\'s new profit outlook shows a measly 0.7 percent margin on expected revenues of $598 billion for the capital-intensive industry and leaves airlines with little capacity to absorb new external shocks. \"The efficiency gains of the last decade and the strengthening global economic environment are balancing the high price of fuel,\" said Bisignani, who is also IATA\'s chief executive officer. \"But with a dismal 0.7 percent margin, there is little buffer left against further shocks,\" he added. The high oil price is the biggest culprit dragging down the industry\'s profitability, said IATA, which has raised its average Brent crude forecast by 15 percent to $110 a barrel for 2011. Previously, the airline body estimated Brent crude would average $96 a barrel this year. In Asian trade Monday, Brent North Sea crude for July delivery was trading at slightly above $115.43 a barrel. IATA said airlines can expect to pay an additional $1.6 billion for every one dollar increase in the average annual oil price. \"With estimates that 50 percent of the industry’s fuel requirement is hedged at 2010 price levels, the industry 2011 fuel bill will rise by $10 billion to $176 billion,\" IATA said in a statement. \"Fuel is now estimated to comprise 30 percent of airline costs, more than double the 13 percent of 2001,\" it said. Carriers from the Asia-Pacific are expected to outperform the rest of the world with a likely profit of $2.1 billion for the year but this is down sharply from the $10 billion earned in 2010, IATA said. \"Airlines in this region are more exposed than others to cargo markets and fuel price fluctuations,\" it said. \"In addition, the Japanese earthquake and tsunami are expected to dent the region’s prospects for the remainder of the year.\" IATA expects robust growth in India and China to provide underlying support to the region\'s carriers. The political unrest in the Middle East will squeeze the region\'s carriers, which are seen earning just $100 million in profits, down sharply from $900 million last year, IATA said. North American carriers are expected to earn $1.2 billion this year, down from $4.1 billion in 2010 as the cost of oil is exacerbated by the region\'s fleet of mostly older, less fuel-efficient aircraft, IATA said. In Europe, carriers will likely make $500 million compared with $1.9 billion last year as the ongoing sovereign debt crisis hits growth in the smaller European economies. Africa is the only region expected to be in the red with a likely loss of $100 million as the recent political unrest in Egypt and Tunisia continues to affect the tourism sectors. The Geneva-based airline body represents some 230 carriers that account for more than 90 percent of scheduled air traffic worldwide but does not include many of the big budget airlines.

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