Fuel prices cut deeper into profits

The airline industry's profit this year will plunge 62 per cent, a bigger drop than predicted in December, as fuel prices rise, the International Air Transport Association (IATA) said. Carriers' net income will fall to $3 billion (Dh11.01 billion) in 2012 from $7.9 billion last year, with the profit margin coming in at 0.5 per cent of sales, the Geneva- and Montreal-based trade group said in a statement. IATA forecast on December 7 that global airline earnings in 2012 would amount to $3.5 billion, with a margin of 0.6 per cent. The price of oil has climbed about 12 per cent since IATA published its last forecast. Iran has threatened to close the Strait of Hormuz, the main shipping outlet for the Arabian Gulf countries' oil, in response to international sanctions against its nuclear-research programme. The airline industry is at risk of becoming unprofitable if oil prices jump enough to hurt the global economy in addition to the effect on fuel costs, IATA said. "I must emphasise that the industry is fragile,'' IATA Chief Executive Officer Tony Tyler said on a conference call. Fuel makes up about a third of an airline's costs, according to IATA. 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. From gulfnews