IATA says airline profits to plunge this year

AP News
Posted: Jun 06, 2011 7:23 AM
IATA says airline profits to plunge this year

Airline profits will likely plummet this year because of natural disasters, political violence and higher fuel prices, an industry group said Monday.

Airlines will probably earn about $4 billion in 2011, down from $18 billion last year, the International Air Transport Association said. IATA's previous forecast in March estimated 2011 profits of $8.6 billion.

"Natural disasters in Japan, unrest in the Middle East and North Africa, plus the sharp rise in oil prices have slashed industry profit expectations," IATA Director General Giovanni Bisignani said in a statement. "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."

Higher fuel costs _ crude rose to $115 last month from $84 in February _ are the largest obstacle to airline profitability, IATA said.

The industry's fuel bill will likely rise by $10 billion this year to $176 billion and fuel now accounts for 30 percent of an airline's costs, up from 13 percent in 2001, IATA said.

Airlines are counting on continued growth in the global economy to help offset higher oil prices. Passenger numbers will likely increase 4.4 percent this year while cargo should grow 5.5 percent, though both forecasts are below IATA's March estimates.

"The corporate sector is cash-rich, business confidence is high, and world trade continues to expand," IATA said. "The key risk to this outlook is a weakening of global economic growth."

IATA expects a razor thin 0.7 percent profit margin for airlines this year on revenue of $598 billion.

Airline executives criticized a new European Union plan that would make carriers pay for carbon dioxide emissions that exceed a limit. The Emissions Trading Scheme is scheduled to begin on January 1 and will likely lead other countries and jurisdictions to implement similar taxes over the next few years, said Tim Clark, president of Dubai-based Emirates Airline, the world's largest carrier by international passenger traffic.

"The emission targets are very difficult. It's an incredibly big task," Clark said during a panel discussion after IATA's general assembly meeting in Singapore.

Until global emissions standards are in place, Europe's carbon tax on airlines will likely lead carriers to avoid making connections in Europe if possible, said Antonio Vazquez, chairman of IAG, the parent of British Airways and Iberia.

Industry officials in the U.S. and China have said they will challenge Europe's emission tax plan in court. Airline executives seemed resigned to the new cost and said it will likely lead to higher ticket prices.

"We just have to face it and do it," said Emirsyah Satar, chief executive of Garuda Indonesia. "It will be passed on to the consumer. It just creates more costs at a time when we're struggling."

IATA said Asian airlines would have the biggest profits this year, predicting earnings of $2.1 billion while North American carriers would see profits of about $1.4 billion. Europe's airlines would earn about $500 million and the Middle East and Latin American $100 million each.

Clark said the next 20 to 30 years would see the emergence of Asia as the dominant force in civil aviation.

"It will be very difficult for the Americans and Europeans to accept. Asian markets will drive consumer demand which in turn will drive the whole supply chain of the aviation industry, and we're seeing that already."