IATA downgraded its 2011 airline industry outlook to US$8.6 billion from the US$9.1 billion it estimated last December. According to the statement IATA released yesterday, this is a 46 per cent drop in net profits compared to the US$16 billion earned last year.
On expected industry revenues of US$594 billion, the US$8.6 billion equates to a net profit margin of 1.4 per cent.
“Political unrest in the Middle East has sent oil over US$100 per barrel, significantly higher than US$84 per barrel in December that was the assumption in December,” said Giovanni Bisignani, IATA’s Director General and CEO.
“At the same time, the global economy is now forecast to grow by 3.1 per cent this year — a full 0.5 percentage point better than predicted just three months ago. But stronger revenues will provide only a partial offset to higher costs. Profits will be cut in half compared to last year and margins are a pathetic 1.4 per cent,” he added.
IATA has now revised its 2011 average oil price assumption to US$96 per barrel of Brent crude from US$84 in December. This will increase the industry fuel bill by US$10 billion to US$166 billion. Oil prices are expected to be 20 per cent higher this year compared to 2010, with fuel estimated to represent 29 per cent of total operating costs, up from 26 per cent last year.
“There is very little buffer for the industry to keep its balance as it absorbs shocks. Today, oil is the biggest risk — if its rise stalls the global economic expansion, the outlook will deteriorate very quickly,” said Bisignani.
While growing economies are seen to offer airlines some relief, higher revenues are not seen to be enough to prevent the hike in oil prices from causing profits to shrink.
IATA sees Asia Pacific carriers as delivering the largest collective profit of US$3.7 billion and the highest operating margins of 4.6 per cent. However, this is substantially down from the US$7.6 billion that the region’s carriers made in 2010 and from the previously forecast $4.6 billion for 2011.
According to the IATA release: “While the strong economic growth in the region is still driving profitability, inflation fighting measures in China are slowing trade and air cargo demand. The key reason for the downgrade from December’s forecast is that the region is more exposed to higher fuel prices, due to relatively low hedging on average.”
