IATA Sees Global Airline Profit Halving In 2011

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Published: March 3, 2011

Global airline net profits will halve this year as rising costs, especially oil prices, offset increasing demand, the industry body IATA said on Wednesday.

The result would be a net profit margin this year of only 1.4 percent — dismissed by IATA Director-General Giovanni Bisignani as more worthy of a charity than an industry — down from 2.9 percent in 2010.

Bisignani told a news conference that increased taxes such as levies on ticket prices were another threat to the struggling industry, which he said was not sustainable in the long term, and called on governments to review regulations to underpin airline profitability.

“We are constantly walking on a tightrope with very thin margins, and there is no buffer,” he said. “This industry is very, very fragile.”

The International Air Transport Association now expects global net profit to be USD$ 8.6 billion this year, down from USD$ 9.1 billion forecast in December.

Net profit is estimated at USD$ 16 billion in 2010, revised up from the USD$ 15.1 billion estimate in December.

Those profits come on revenues forecast at USD$ 594 billion this year, up from an estimated USD$ 552 billion in 2010. Revenues stand against industry debts of USD$ 210 billion, Bisignani noted.

IATA’s forecasts assume an average oil price of USD$ 96 per barrel for Brent crude this year, up from USD$ 84 forecast in December, and USD$ 79.4 a barrel in 2010.

As a result the industry’s fuel bill will rise to USD$ 166 billion this year — 29 percent of total costs — from USD$ 139 billion or 26 percent in 2010.

Bisignani said every USD$ 1 increase in the price of a barrel of oil adds USD$ 1.6 billion in costs to airlines, which are estimated to have hedged 50 percent of their fuel purchases this year.

IATA declined to speculate whether the latest oil price increases would lead to fuel surcharges on tickets, as that is a matter for its individual members.

The improving global economy will increase demand for airline products, with passenger growth expected to be 5.6 percent this year, up from December’s 5.2 percent increase, while cargo demand — an important indicator of world trade — is seen rising 6.1 percent, up from 5.5 percent in December.

The IATA global forecast includes wide variation in airline performance by region, with carriers in the Asia-Pacific region expected to produce a net profit margin of 4.6 percent. Airlines in the region benefit from the strong economy, but have hedged fuel prices relatively loss than those in other countries.

European airlines are the least profitable of the major regions.

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